•  TRADE  ASSOCIATION  ACTIVITIES 

AND 

THE  LAW  » 


DISCUSSION    OF    THE    LEGAL    AND    ECONOMIC 
ASPECTS  OP  COLLECTIVE  ACTION  THROUGH 
TEADE  ORGANIZATIONS 


BY 

FRANKLIN  D.  .[ONES 

OF  THE  BAR  OF  THE  SUPREME  COURT  OF  THE  UNITED  STATKS 


FIRST  EDITION 


McGBAW-HILL  BOOK  COMPANY,  INC. 
NEW  YORK:  370  SEVENTH  AVENUE 

LONDON  :  6  &  8  BOUVERIE  ST.,  E.  C.  4 
1922 


/-/  5b  2. 


COPYEIGHT,  1922,  BY  THE 

MCGRAW-HILL  BOOK  COMPANY,  INC. 


TO  MY  MOTHER 


496962 


PREFACE 

Cooperation  is  the  keystone  of  civilization.  Power — order — 
progress, — civilization  itself  depend  upon  the  ability  of  men  to 
work  together  for  the  common  good.  Just  as  the  maintenance 
of  the  State  requires  cooperative  organization,  so  too  is  there  a 
compelling  necessity  for  unity  of  purpose  and  action  in  industry 
if  the  progress  of  American  commerce  and  the  national  interests 
are  to  be  forwarded.  If  unreasonable  legal  prohibitions  make 
cooperation  between  competing  groups  in  industry  impossible, 
even  though  not  hurtful  to  the-  public,  the  result  will  be  to 
compel  a  process  of  merger,  consolidation  and  ultimate  monopoly 
with  its  dangerous  social  and  economic  effects.  We  can  en- 
courage a  cooperative  organization  of  industry,  without  en- 
dangering competition.  Indeed  the  preservation  of  the  competi- 
tive system  depends  in  no  small  degree  upon  the  ability  of  busi- 
ness men,  particularly  the  smaller  business  men,  to  work  out  their 
larger  problems  through  collective  action. 

Unfortunately,  the  wilful  violation  of  the  law  by  some  asso- 
ciations has  created  a  spirit  of  hostility  and  suspicion  on  the 
part  of  the  general  public  toward  any  united  action  by  business 
men.  The  achievements  of  our  trade  associations,  redounding 
to  the  public  good,  have  not  been  told.  The  strengthening  of 
business  ideals,  the  reduction  of  the  wastes  and  frictions  of  trade, 
the  increased  efficiency  in  production  and  distribution,  the  vast 
savings  to  the  public,  all  of  which  have  resulted  from  the  col- 
lective action  of  business  men  through  their  trade  organizations, 
are  a  closed  book  to  the  public.  The  great  program  of  coopera- 
tion between  industry  and  government,  now  being  effected  by 
the  Department  of  Commerce,  under  the  direction  of  Secretary 
Hoover,  is  just  awakening  a  general  interest  and  creating  a 
realization  of  the  importance  of  the  effective  organization  of  our 
industries,  both  in  domestic  and  foreign  trade. 

This  book  has  a  two-fold  purpose.  First,  an  endeavor  is 
made  to  explain  in  as  non-technical  language  as  is  possible,  the 


viii  PREFACE 

meaning  and  purpose  of  the  laws  regulating  competition.  As  a 
means  of  guidance  for  association  officials  and  members,  the 
forms  of  collective  acts  prohibited  by  the  law  are  enumerated. 
If  I  have  been  guilty  of  overstating  the  prohibitions  of  the  law, 
it  is  to  aid  the  great  majority  of  business  men,  whom  I  feel 
sincerely  desire  to  avoid  those  legal  entanglements,  which  some- 
times result  from  the  attempts  of  attorneys  to  define  exactly  the 
limits  of  the  " twilight  zone."  Second,  a  summary  is  presented 
of  that  great  group  of  lawful  activities,  in  which  our  trade  asso- 
ciations are  steadily  achieving  results  of  vast  benefit  to  industry 
and  to  the  nation.  It  is  hoped  that  a  recital  of  these  achievements 
may  reveal  to  the  public  the  value  of  trade  associations  in  our 
national  life.  It  is  my  hope  also  that  a  summary  of  the  methods 
of  many  associations  will  at  least  be  suggestive  of  the  basis  on 
which  a  constructive  program  of  trade  association  activities  can 
be  formulated  by  any  industry.  No  one  realizes  more  than  the 
writer  the  imperfections-  of  this-  presentation. 

I  desire  to-  express  my  appreciation  to  Joseph  E.  Davies, 
former  Chairman  of  the  Federal  Trade  Commission,  and  W.  S. 
Culbertson,  Vice-Chairman  of  the  United  States  Tariff  Commis- 
sion, for  helpful  suggestions  given  me.  I  am  also  deeply  in- 
debted to  W.  H.  S.  Stevens,  Assistant  Chief  Economist  of  the 
Federal  Trade  Commission,  and  Adrien  F.  Busick,  Assistant 
Chief  Counsel  of  the  Commission,  who  have  been  good  enough  to 
read  considerable  portions  of  the  manuscript  and  give  me  the 
benefit  of  very  valuable  criticisms.  My  thanks  are  due  William 
F.  Notz,  Chief  of  the  Export  Trade  Division  of  the  Federal 
Trade  Commission,  to  George  Weber,  Certified  Public  Account- 
ant, of  New  York  City,  and  Edward  A.  Haid,  Traffic  Attorney, 
of  St.  Louis,  Missouri,  for  reading  and  criticising  Chapters  XIV, 
V  and  X,  respectively.  Raymond  N.  Beebe  and  Byron  Phelps 
Parry  have  assisted  me  greatly  in  many  ways.  To  Russell 
Hardie,  Assistant  to  the  Attorney  General,  and  to  the  officials 
of  many  trade  associations,  who  have  been  very  generous  in 
furnishing  me  a  great  deal  of  material,  I  also  express  my  thanks. 

FBANKLIN  D.  JONES. 
WASHINGTON,  D.  C., 

June,  1922. 


CONTENTS 

PAGE 

PREFACE vii 

CHAPTER  I. — THE  RULES  OF  COMPETITION 1 

Sherman  Anti  Trust  Act — Prohibits  unreasonable  restraints  of 
trade — Test  of  unreasonableness — Extent  of  restraint — Effect  of 
restraint — Methods  employed — Peculiar  facts  of  the  industry. 
Clayton  Act — Supplements  Sherman  Act — Price  discriminations 
— Exclusive  dealing  contracts — Intercorporate  stock  holding — In- 
terlocking directorates — Test  of  unlawfulness  is  whether  probable 
effect  of  use  will  be  to  substantially  lessen  competition.  Excep- 
tions to  Sherman  Act — Webb  Act  permits  combinations  solely 
in  export  trade — Clayton  Act,  Sec.  6 — Legalizes  labor  and  farm 
organizations  as  such,  but  does  not  legalize  acts  in  restraint  of 
trade — Act  of  Feb.  6,  1922,  authorizes  associations  of  producers 
subject  to  regulation  by  Department  of  Agriculture.  Federal 
Trade  Commission  Act — Prohibits  unfair  methods  of  competition 
— Test  of  unfairness — Enlargement  of  jurisdiction  by  Webb  Act — 
Revenue  Act  of  Sept.  8,  1916,  makes  dumping  unfair  method 
of  competition — Limitation  -{jfSJf&l  isdiction  by  Packers  and  Stock- 
yards Act  of  1921.  Summary. 

CHAPTER  II. — THE  PURPOSE  OF  THE  LAWS  REGULATING  COMPETITION      21 
Protection  of  the  efficient — Preservation  of  individual  opportunity 
— Encouragement  of  invention — Protection   of   producers  of  raw 
material — Protection  of  labor — Dangers  of  unregulated  competi- 
tion to  industry — Protection  of  public   against  enhancement  of-' 
price — Protection     against    depreciation    of    quality — Protection 
against  depreciation  of  service — Protection  of  government  against 
monopolistic  control  or  socialism^Dangers  of  unregulated  com- 
petition to  the  public. 

CHAPTER  III. — FRAMING  THE  RULES  OF  BUSINESS  CONDUCT  .  .  33 
Value  of  written  documents  in  crystallizing  sentiment — Harmful 
effect  of  dishonest  practices  by  small  minority — Statement  of 
principles  of  business  conduct — Lack  of  control  over  non-members 
— Complaints  to  Federal  Trade  Commission — Trade  Practice  Sub- 
mittal  before  Federal  Trade  Commission — Legality. 

CHAPTER  IV. — THE  DISSEMINATION  OF  BASIC  BUSINESS  FACTS  .  44 
Business  men  entitled  to  know  facts.  Evils  flowing  from  lack  of 
knowledge  of  facts.  Vnlue  of  facts  on  productive  capacity — Rela- 
tion to  production — Prevents  overproduction — Relation  to  in- 
vestment of  capital — Relation  to  credit.  Value  of  facts  on  supply*' 
and  demand — Data  compiled  by  associations — Comparison  indi- 
vidual with  geneml  business  conditions — Protection  against  mis- 
representation of  buyers — Speculation — Local  surpluses  and  short- 
ages— Oversupply  or  undersupply  of  particular  items — Revealment 
potential  markets — Comparison  with  competing  industries. 
Value  of  facts  on  operation  and  management — Increased  efficiency 

ix 


*  CONTENTS 

PAGE 

— Safety  of  operation — Limitation  of  waste.  Value  of  facts  show- 
ing general  business  trend — Type  of  data  disseminated — Survey 
of  Business,  Department  of  Commerce.  Benefits  to  public — Pro- 
tection of  small  manufacturer — Collection  of  trade  data  of  value 
to  government — Use  in  war — Effect  on  prices.  Legality. 

CHAPTER  V. — THE  STUDY  OF  COST  AND  ACCOUNTING  METHODS  .  63 
Cost  knowledge  lacking.  Association  cost  systems.  Advantages 
of  cost  accounting  systems — Factor  in  determination  of  price — 
Location  and  elimination  of  waste — Improvement  of  quality — 
Stimulation  of  production — Increase  of  business — Aid  in  making 
tax  returns.  Additional  benefits  of  uniform  association  systems 
— Cost  comparisons  and  efficiency — Value  in  government  relations 
— Price  stabilization.  Methods  of  installation — Cost  accounting 
committee — Cooperation  with  educational  institutions — Employ- 
ment of  cost  accountants — Subsidiary  cost  associations.  Sug- 
gestions. Legality. 

CHAPTER   VI. — STANDARDIZATION 80 

Classification  of  Standards — Standardization  of  Nomenclature — 
Quantity — Quality — Performance — Practice — Types,  Sizes,  and 
Varieties — Dimensions.  Benefits  of  standardization — To  manu- 
facturers— To  distributors — To  general  public.  Dangers  of  stand- 
ardization. Procedure  in  adopting  standards — Action  by  associa- 
tion only — Cooperation  with  technical  organizations — Cooperation 
with  the  government — Legislation.  Means  of  enforcement. 
Legality. 

CHAPTER  VII. — INDUSTRIAL  RESEARCH 103 

Value  of  research.  Availability  to  small  manufacturer.  Fields 
for  cooperation  research — Compilation  of  published  data;  library 
— Utilization  of  by-products — Improvement  of  processes — Deter- 
mination of  properties — Reduction  of  wastes  of  transportation — 
Standardization — Labor — Improvement  of  quality — Improvement 
of  equipment — Development  of  new  uses — Improvement  of  meth- 
ods of  use — Protection  against  fraud — Protection  of  good  will. 
Research  methods — Papers  and  discussions  at  meetings — Sub- 
sidiary associations — Commercial  laboratories — Cooperation  with 
educational  institutions — Cooperation  with  government  depart- 
ments— Association  research  laboratories.  Safeguards  against 
failure.  National  Research  Council.  Association  research  in 
foreign  countries*  Conclusion.  Legality. 

CHAPTER  VIII. — TRADE  ASSOCIATIONS  AND  LABOR  .  .  .  .127 
Importance  of  rapprochement  between  labor  and  capital.  Asso- 
ciations opposed  to  organized  labor.  Collective  bargaining  be- 
tween associations  and  labor.  Association  study  of  labor  prob- 
lems— Association  meetings  and  bulletins — Formulation  of  prin- 
ciples— Direct  participation  in  activities  designed  to  improve 
labor  conditions — Accident  prevention — Trade  education — Set- 
tlement jurisdictional  strikes — Unemployment — Miscellaneous. 
Legality. 

CHAPTER.  IX. — COOPERATIVE  ADVERTISING 147 

Value  of  advertising.  Uses  of  cooperative  advertising — Enlarg- 
ing demand — Modifying  season  demand — Educating  distributors 


CONTENTS  xi 

PAGE 

— Protection  against  competing  industries — Improvement  quality 
and  protection  of  good  will — Obtaining  contact  with  public — 
Other  uses.  Results  of  cooperative  advertising.  Financing  an 
association  campaign.  Advertising  methods.  Pitfalls  of  associa- 
tion advertising.  Legality. 

CHAPTER  X. — TRAFFIC  AND  TRANSPORTATION  .  .  .  .  .  168 
Importance  of  transportation  to  industry.  Rates — Different 
methods  of  construction — Effect  in  retarding  shipments — Com- 
petitive rates  on  products  competing  industries — Raw  material 
rates — Import  rates — Export  rates.  Classifications,  carload 
weights,  minimums,  car  service  rules,  demurrage,  penalties,  etc. 
Private  cars.  Transportation  emergencies.  Association  methods 
— Traffic  committee — Private  traffic  organizations — Association 
traffic  bureau — Independent  association.  National  Industrial 
Traffic  League.  Legality. 

CHAPTER  XI. — PROTECTIVE  ACTIVITIES 179 

Credit  and  collection  bureaus — Benefits — General  exchange  of 
credit  information — Special  composite  reports — Study  conditions 
affecting  credit — Collections — Legality.  Patents.  Trade-marks 
and  trade-names.  Designs.  Insurance.  Missing  Property 
Bureau.  Other  activities. 

CHAPTER  XII. — COMMERCIAL  ARBITRATION 193« 

Development  of  arbitration.  Benefits  of  arbitration — Economy — 
Expedition — Practical  decisions  by  business  men — Establishment 
trade  customs — Strengthening  of  commercial  standards — Im- 
proved morale — Increased  business.  Organization  of  arbitration 
system — Voluntary  or  compulsory — Formal  or  informal.  Pro- 
cedure —  Arbitrators  —  Appointment  —  Qualifications  —  Duties — 
Compensation — Submission — Hearing — Award — Appeal — Enforce- 
ment— Legality. 

CHAPTER  XIII. — SPEEDING  UP  DISTRIBUTION 212 

Demand  for  improvement  in  distribution.  Uniform  trading  rules 
— Reduction  disputes  and  litigation — Discouragement  dishonest  ^ 
practices — Legality.  Uniform  contracts — Improved  basis  for  busi- 
ness transactions — Reduction  of  disputes  and  litigation — Redup- 
tion  of  sales  effort — Method  of  adoption — Legality.  Salesmanship 
schools — Improvement  of  selling  methods — Enlarged  sales — 
Legality.  Overstock  exchanges — Release  of  capital — Increased 
liquidity  of  supply.  Educational  work — Assistance  to  retailer — 
Information  for  architects,  engineers,  etc. — Education  of  con- 
sumer. 

CHAPTER  XIV.— FOREIGN  TRADE 221 

Importance  of  foreign  trade.  Association  foreign  trade  work. 
Export  associations — Advantages — Membership — Organization — 
Corporation  or  partnership — Capital — Control — Operation — Le- 
gality— Edge  Act. 

CHAPTER  XV. — GOVERNMENT  RELATIONS 237 

Contact  between  industry  and  government — Legislation — Regula- 
tory bodies — Government  departments!  Failure  of  industries  to 


xii  CONTENTS 

PAGE 

present  facts.  Value  of  organization  in  relations  with  govern- 
ment— Legislation,  tariff,  taxes,  etc. — Cooperation  -with  Federal 
Trade  Commission,  Interstate  Commerce  Commission — Coopera- 
tion with  departments. 

CHAPTER  XVI. — COLLECTIVE  ACTIVITIES  PROHIBITED  BY  LAW  .  .  242 
Legality  of  trade  associations.  Voluntary  restraints — -Trusts — 
Holding  companies— (-Merger-VrDivision  of  territoryV-Classincation 
of  trade — Allotment  of  customers — Curtailment  of  production  or 
supply — Restrictions  on  price  competition — Agreements  fixing 
price — Agreements  affecting  price — Fictitious  bids  or  sales — False 
statements  designed  to  affect  prices — Pools — Open  price  associa- 
tion— Common  selling  agency — Patents — Copyrights — Corner — 
Monopoly — Cooperative  buying  organizations — Agreements  to  re- 
frain from  bidding — Restraints  on  competition  in  terms — Re- 
straints on  competition  in  service — Restraints  on  competition  in 
quality.  Involuntary  restraints — Control  of  channels  of  distribu- 
tion— Boycotts  and  blacklists — Whitelists — Cutting  of  competi- 
tors' supply — Interfering  with  labor  supply — Interference  with 
procurement  storage  facilities — Price  discrimination — Fighting 
instruments — Malicious  litigation — Espionage — Intimidation  and 
coercion — Misuse  of  governmental  agencies. 

APPENDICES 275 

Appendix  A.    Sherman  Anti-Trust  Act 277 

Appendix  B.    Clayton  Act 279 

Appendix  C.    Webb  Export  Act 292 

Appendix  D.    Capper- Volstead  Act 295 

Appendix  E.    Federal  Trade  Commission  Act 297 

Appendix  F.    Act  of  Sept.  8,  1916 306 

Appendix  G.  Packers  and  Stockyards  Act  of  1921  .        .        .        .308 

Appendix  H.    Wilson  Tariff  Act .321 

Appendix  I.     Panama  Canal  Act 323 

Appendix  J.  Correspondence  between  Department  of  Commerce 
and  Department  of  Justice  upon  the  Activities  of 

Trade  Associations 324 

INDEX  .  337 


TRADE  ASSOCIATION 
ACTIVITIES  AND  THE  LAW 

CHAPTER  I 
THE  RULES  OP  COMPETITION 

DEMOCRACY,  in  industry  as  in  government,  is  the  American 
ideal.  Our  laws  regulating  the  conduct  of  business,  have  all 
been  formulated  to  protect  the  individual  trader,  to  encourage 
initiative,  to  preserve  opportunity  and  to  maintain  for  the 
public  the  great  political,  social  and  economic  benefits  which 
flow  from  a  competitive  system  of  industry. 

Two  rules  of  competition  of  great  economic  importance  have 
been  written  into  our  statute  books.  The  one  prohibits  all  un- 
reasonable restraints  of  trade.  The  other,  supplementing  the 
first,  makes  unlawful  the  use  of  unfair  methods  of  competition. 
These  two  prohibitions,  while  modified  and  amplified  by  other 
statutes,  embody  the  spirit  and  purpose  of  the  federal  regula- 
tion of  business. 

The  Sherman  Anti-Trust  Act.— The  Sherman  Anti-Trust 
Act  of  1890  broadly  speaking  prohibits  all  unreasonable  re- 
straints of  trade.1  The  Act  is  comprehensive  and  reaches  all 
such  restraints  regardless  of  the  methods  used  to  accomplish 

iSee  Appendix  A.  The  Act  of  July  2,  1890  (26  Stat.  209)  contains 
two  prohibitions.  Section  1  is  aimed  at  combined  actions  designed  to 
restrict  competition  and  declares  unlawful  every  conceivable  contract,  com- 
bination or  conspiracy  which  directly  restrains  trade.  Standard  Oil  Com- 
pany vs  United  States,  221  U.  S.  1,  60;  Northern  Securities  Co.  vs  United 
States,  193  U.  S.  197.  The  existence  of  such  a  contract,  conspiracy  or 
combination  may  be  implied  from  a  course  of  dealing  or  other  circum- 
stances. Frey  d  Sons  vs  Cudahy  Packing  Co.,  41  Supreme  Court  Rep.  451; 
Eastern  States  Retail  Lumber  Dealers'  Association  vs  United  States,  234 
U.  S.  600,  608,  609  (1914)  ;  American  Column  and  Lumber  Co.  vs  United 
States,  42  Sup.  Ct.  Rep.  114,  117  (1921).  Section  2  prohibits  monopoly 

1 


2  TRADE  A&SQd? AVION  .ACTIVITIES  AND  THE  LAW 

them.2  To  determine  the  reasonableness  or  unreasonableness  of 
a  restraint  of  trade,  it  is  necessary  to  consider  the  factors  which 
naturally  appeal  to  the  reason  as  justifying  or  condemning  the 
restraint.  The  extent,  the  effects,  and  the  nature  of  the  re- 
straint, the  methods  by  which  the  power  to  restrain  was  secured, 
the  intention  of  the  parties  and  the  particular  facts  of  the  in- 
dustry involved  should  all  be  considered,  but  basically  the  real 
and  final  test  is  whether  or  not  the  restraint,  by  reason  either  of 
the  intent  of  the  parties  or  of  the  inherent  nature  of  the  acts 
done  or  contemplated,  suppresses  or  has  within  it  the  power  to 
suppress  competition  to  the  public  detriment.3 

or  any  attempt  to  monopolize  any  part  of  interstate  or  foreign  commerce 
and  was  intended  to  supplement  the  first  section  to  make  certain  that  the 
public  policy  embodied  in  that  section  could  not  be  evaded.  Standard  Oil 
Co.  vs  United  States,  221  U.  S.  1,  60  (1911).  It  is  a  very  important  en- 
largement of  the  prohibitions  of  the  first  section  in  the  following  two  re- 
spects :  First :  as  is  not  generally  understood,  it  applies  to  individual  as  well 
as  combined  action,  while  the  first  section  applies  only  to  contracts,  com- 
binations, or  conspiracies,  which  require  two  or  more  parties.  Northern 
Securities  Co.  vs  United  States,  193  U.  S.  197,  404  (1904)  ;  Standard  Oil 
Co.  vs  United  States,  221  U.  S.  1,  61  (1911).  Secondly:  it  adds  to  the 
methods  which  are  prohibited.  The  term  monopoly,  by  legal  interpretation, 
has  come  to  have  a  synonymous  meaning  with  the  phrase  "restraint  of 
trade"  in  the  first  section.  Standard  Oil  Co.  vs  United  States,  221  U.  S.  1, 
61  (1911).  The  phrase  "attempt  to  monopolize"  is  therefore  construed 
to  embrace  any  and  all  attempts  of  any  nature  to  accomplish  an  undue 
restraint  of  trade,  thus  making  the  prohibition  of  unreasonable  restraints 
of  trade  complete  and  all  embracing.  IUd.,  p.  61.  There  appears,  how- 
ever, to  be  a  tendency  on  the  part  of  the  Supreme  Court  to  distinguish  be- 
tween a  monopoly  acquired  by  combination  and  a  monopoly  acquired  by 
individual  action.  In  the  case  of  a  monopoly  acquired  by  individual 
action,  if  no  unfair  or  improper  business  methods  were  used  in  ac- 
quiring it,  the  court  seems  inclined  not  to  hold  such  a  monopoly  a  vio- 
lation of  the  Act,  although  their  decisions  may  be  construed  as  holding 
only  that  there  is  no  legal  prohibition  against  individual  action  approach- 
ing monopoly  so  long  as  the  control  does  not  become  so  great  as  to  have  a 
dominating  power  over  the  industry.  United  States  vs  United  Shoe 
Machinery  Co.,  247  U.  S.  32  (1918)  ;  United  States  vs  U.  S.  Steel  Corp., 
40  Sup.  Ct.  Rep.  293,  297,  298,  299  (1920). 

2  American  Tobacco  Co.  vs  United  States,  221  U.  S.  106,  181  (1911)  ; 
United  States  vs  United  Shoe  Machinery  Co.,  247  U.  S.  36,  69  (1918). 

s  Nash  vs  United  States,  229  U.  S.  373,  376  (1913)  ;  Board  of  Trade  of 
Chicago  vs  United  States,  246  U.  S.  231,  238  (1917);  United  States  vs 


THE  RULES  OF  COMPETITION  3 

Extent  of  Restraint. — The  extent  of  the  restraint  is  of 
course  an  important  factor  in  determining  its  unreasonable- 
ness. The  restriction  must  be  on  a  substantial  part  of  the  inter- 
state commerce  in  the  article,  although  it  need  be  only  a  very 
sror.vJ  pel-Co  u ;,«  go  of  the  total  interstate  traffic  of  the  country  in 
such  product.4  The  phrase  "any  part  of  the  trade  or  commerce 
among  the  several  states  or  with  foreign  nations "  affected  by 
the  act,  has  both  a  geographical  and  distributive  significance, 
including  both  any  portion  of  the  United  States  and  any  one 
of  the  classes  of  things  forming  a  part  of  interstate  or  foreign 
commerce.5  Therefore,  monopolization  of  the  trade  of  a  single 
city  directly  affecting  interstate  commerce  may  be  a  violation  of 
the  act.6  It  is  not  necessary  that  the  control  or  restraint  should 
extend  for  a  protracted  period  or  beyond  such  a  period  as  is 
required  to  bring  in  a  new  supply.7  A  control  of  a  large  per- 
centage of  the  trade  in  an  article  is  an  indication  of  a  violation 
and  places  upon  the  parties  the  burden  of  showing  that  it  was 
acquired  by  lawful  means.8  In  determining  the  extent  of  the 
control  or  restraint  exercised,  substitute  materials  which  are 
only  in  a  larger  sense  competitive  are  not  considered  nor  is 
that  portion  of  the  production  which  is  for  the  manufacturers' 
own  use.9  Lower  grades,  however,  of  the  same  material,  which 
have  the  same  uses  and  actively  compete  in  the  markets,  should 
properly  be  considered  in  any  estimate  of  the  extent  of  control 
exercised.10  To  constitute  a  monopoly  within  the  meaning  of 
Reading  Co.,  40  Sup.  Ct.  Rep.M25,  432  (1920);  United  States  vs  Union 
Pacific  R.  R.  Co.,  226  U.  S.  61,  88  (1912)  ;  Harriman  vs  Northern  Security 
Co.,  197  U.  S.  244,  291  (1905). 

4  United  States  vs  Union  Pacific  R.  R.  Co.,  226  U.  S.  61,  88  (1912)  ; 
Montague  vs  Lowry,  193  U.  S.  46  (1904)  ;  United  States  vs  Whiting,  212 
Fed.  466,  474  (1914). 

s  Standard  Oil  Co.  vs  United  States,  221  U.  S.  1,  61  (1911). 

6  Montague  vs  Lowry,  193  U.  S.  38,  45  (1904). 

7  United  States  vs  Patten,  226   U.   S.   525;    United   States  vs   Corn 
Products  Refining  Co.,  234  Fed.  964,  1012    (1916)  ;  Lee  Line  Steamers  vs 
Memphis  H.  &  R.  Packet  Co.,  277  Fed.  5,  8  (1922). 

s  United  States  vs  Eastman  Kodak  Co.,  226  Fed.  62,  79  (1915)  ;  United 
States  vs  Swift  and  Co.,  196  U.  S.  375,  391,  394  (1905). 

9  O'Halloran  vs  American  Sea  Green  State  Co.,  207  Fed.  187,  193,  194 
(1913)  ;  United  States  vs  American  Can  Co.,  230  Fed.  859,  899  (1916). 

vs  Calumet  &  Hecla  Mining  Co.,  167  Fed.  704,  730   (1908). 


4  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  act,  the  offending  party  must  have  a  dominating  proportion 
of  the  trade  or  a  dominating  power  over  the  industry.11 

Effect  of  Restraint. — The  effect  of  the  restriction  is  the  most 
important  element  in  determining  reasonableness.  The  act  was 
primarily  adopted  for  the  protection  of  the  public  rather  than 
of  individuals,  and  any  injury  to  the  public  will  condemn  the 
restraint.12  The  fact  that  individual  competitors  of  the  parties 
to  the  restraint  may  be  injured  is  added  proof  of  its  unreason- 
ableness, both  as  to  them  and  as  to  the  public  in  whose  in- 
terest it  is  to  have  the  benefit  of  the  initiative  and  competition 
of  many  independent  tradesmen.13  Our  public  policy  requires 
the  free,  untrammeled  operation  of  the  law  of  supply  and  de- 
mand. Any  substantial  artificial  restriction  thwarting  its  natu- 
ral operation  so  as  to  control  or  enhance  prices  or  to  control  or 
limit  production  going  into  the  normal  currents  of  interstate 
trade,  which  of  itself  affects  price  and  the  convenience  of  the 
public  in  readily  securing  the  article,  is  injurious  to  the  public 
interest.1*  Likewise,  any  restriction  tending  to  suppress  com- 
petition by  restraining  the  liberty  of  traders  to  engage  in  busi- 
ness or  to  transact  their  business  in  the  ordinary  and  cus- 
tomary ways,  is  injurious  both  to  such  traders  and  also  to  the 
public.15  Coercion  of  competitors,  impairment  of  quality,  op- 
pression of  labor  and  artificial  depression  of  raw  material  prices 
are  condemned.  The  effect  of  the  restraint  to  make  it  unlawful 
must  be  substantial.  It  must  be  more  than  a  harmless  regula- 

11  Swift  and  Co.  vs  United  States,  196  U.   S.  375,  391,  394    (1905); 
United  States  vs  Reading  Co.,  40  Sup.  Ct.  Rep.  425,  432    (1920)  ;   United 
States  vs  U.  S.  Steel  Corp.,  40  Sup.  Ct.  Rep.  293   (1920). 

12  United  States  vs  D.  L.  &  W.  Ry.  Co.,  238  U.  S.  516,  534    (1915)  ; 
Wilder  Mfg  Co.  vs  Corn  Products  Co.,  236  U.  S.  165,  174  (1915)  ;  Standard 
Oil  Co.  vs  United  States,  221  U.  S.  1,  58   (1911)  ;   United  States  vs  Union 
Pacific  R.  R.  Co.,  226  U.  S.  61,  87,  88   (1912). 

is  United  States  vs  Trans-Missouri  Freight  Assn.,  166  U.  S.  290,  323 
(1897). 

i*  United  States  vs  Patten,  226  U.  S.  525,  542  (1913);  Loewe  vs 
Lawlor,  208  U.  S.  274,  293  (1908)  ;  United  States  vs  Eastern  States  Retail 
Llr.  Dealers'  Assn.,  234  U.  S.  600,  609  (1914);  United  States  vs  Jellico 
Mountain  Coal  d  Coke  Co.,  46  Fed.  432,  435  (1891). 

i*Addyston  Pipe  Co.  vs  United  States,  175  U.  S.  211,  244  (1899); 
United  States  vs  Trans-Missouri  Freight  Assn.,  166  U.  S.  290,  323  (1897)  ; 
Loewe  vs  Lawlor,  208  U.  S.  274,  293  (1908). 


THE  RULES  OF  COMPETITION  5 

tion  of  competition,  it  must  suppress  competition  or  there  must 
be  in  the  existing  control  of  the  parties  to  the  restraint  the 
power  to  suppress  competition.16 

The  nature  of  the  restraint  may  likewise  be  relevant  in 
ascertaining  whether  or  not  it  is  reasonable.  The  law  prohibits 
only  direct  restraints  of  interstate  commerce  and  does  not  con- 
cern itself  with  restraints  which  are  merely  indirect  or  inci- 
dental.17 The  degree  of  the  restraint  may  also  vary  with  its 
nature.  A  restraint  may  be  voluntary  or  involuntary.18  A 
voluntary  restraint  is  one  imposed  by  the  parties  of  their  own 
volition,  in  which  event  the  unlawfulness  will  be  dependent 
solely  upon  its  effect  upon  the  public.  An  involuntary  restraint, 
on  the  other  hand,  imposes  restrictions  on  competitors  and  may 
have  added  viciousness  in  its  tendency  toward  the  elimination  of 
such  competitors  with  the  subsequent  economic  evils  of  monopoly. 
Then,  too,  the  type  of  competition  affected  may  have  a  certain 
relevancy.  The  law  frowns  upon  any  restraint  which  suppresses 
either  actual  or  potential  competition.19  It  is  designed  to  pro- 
tect both  the  market  of  the  buyer  and  the  market  of  the  seller, 
and  therefore,  looks  with  disfavor  upon  restraints  of  competi- 
tion either  in  buying  or  in  selling.20  Cooperative  buying  agen- 
cies, however,  may  have  benefits  to  the  public  in  the  securing  of 

is  Board  of  Trade  of  Chicago  vs  United  States,  246  U.  S.  231,  238 
(1917). 

17  Anderson  vs  United  States,  171  U.  S.  615  (1898);  Surift  &  Co.  vs 
United  States,  196  U.  S.  375,  396  (1905)  ;  United  States  vs  Joint  Traffic 
Assn.,  171  U.  S.  568  (1898);  United  States  vs  Patten,  226  U.  S.  525 
(1913);  Field  vs  Asphalt  Co.,  194  U.  S.  618,  623  (1904);  United  States 
vs  Northern  Securities  Co.,  193  U.  S.  197,  402  (1904). 

is  United  States  vs  Patten,  226  U.  S.  525,  541  (1913);  Loewe  vs 
Lawlor,  208  U.  S.  274,  293,  294  (1908) ;  Oompers  vs  Buck  Stove  &  Range 
Co.,  221  U.  S.  418  (1911). 

is  United  States  vs  Colgate  &  Co.,  250  U.  S.  300,  307  (1919)  ;  United 
States  vs  Reading  Co.,  226  U.  S.  324,  369,  370  (1912)  ;  United  States  vs 
Kissel,  218  U.  S.  601  (1910);  Thomson  vs  Union  Castle  S.  S.  Co.,  166 
Fed.  251,  253  (1908)  ;  United  States  vs  Union  Pacific  R.  R.  Co.,  188  Fed. 
102,  117  (1911);  Penn  Sugar  Refining  Co.  vs  American  Sugar  Ref.  Co., 
166  Fed.  254  (1908). 

20  Hard  Rubier  Co.  vs  U.  S.  Rubber  Co.,  229  Fed.  583,  587,  588  (1916)  ; 
United  States  vs  Whiting,  212  Fed.  466,  477  (1914)  ;  Swift  &  Co.  vs  United 
States,  196  U.  S.  375,  399  (1905). 


6  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

lower  prices  in  turn  affecting  in  a  measure  the  question  of 
reasonableness  which  a  restriction  of  competition  in  selling 
would  not  have.  Again,  competition  divides  itself  into  com- 
petition in  price,  competition  in  quality,  competition  in  terms 
and  competition  in  service.  A  restriction  of  competition  in  serv- 
ice might,  in  some  instances,  be  of  benefit  both  to  the  industry 
and  to  the  public.  On  the  other  hand,  price  is  in  a  way  the 
final  expression  of  competition  often  including  within  itself 
allowances  for  the  cost  of  other  forms  of  competition  and  a 
restriction  or  control  of  competition  in  price,  unless  it  be  by 
some  harmless  restriction  to  establish  the  period  of  the  day  in 
which  it  would  be  effective,  or  possibly  to  prevent  sales  below 
cost,  would  be  beyond  question  unlawful. 

Methods  Employed. — The  methods  by  which  the  restraint  or 
the  power  to  restrain  was  attained  may  also  have  a  certain  bear- 
ing on  the  question  of  reasonableness.21  It  was  not  the  purpose 
of  the  law  to  discourage  efficiency  and  where  the  control  was 
secured  by  the  usual  and  normal  methods  of  doing  business,  the 
courts  are  inclined  to  hold  the  acquirement  of  power  not  to  be 
unlawful  unless  it  is  such  as  to  be  a  dominating  power  over  the 
entire  industry.22  But  when  the  means  used  are  of  such  a 
nature  to'  justify  the  conclusion  that  they  are  not  employed  with 
the  legitimate  purpose  of  reasonably  developing  trade  but  are 

'  on  the  contrary  done  with  the  intent  to  do  wrong  to  the  public, 
and  to  limit  unduly  the  rights  of  competition,  they  make  the 

/  plan  unlawful.23  Therefore,  it  may  reasonably  be  said  that  any 
act  which  is  designed  to  injure  the  public  by  forcing  an  increase 
in  price,  or  lessening  their  opportunity  to  secure  goods  and  the 
like,  or  any  acts  fraudulent  or  coercive,  which  restrict  the  rights 

•  of  competitors  freely  to  do  business,  will  be  condemned  as  un- 
reasonable and  will  make  any  plan  of  which  they  are  a  part, 
which  hinders  competition  an  unreasonable  restraint  of  trade. 
Even  usual  and  normal  methods  when  used  by  a  great  organi- 

X 

21  United  States  vs  Reading  Co.,  226  U.  S.  324,  370   (1911);    United 
States  vs  Union  Pacific  R.  R.  Co.,  226  U.  S.  61   (1912)  ;  Board  of  Trade  of 
Chicago  vs  United  States,  246  U.  S.  36   (1918). 

22  United  States  vs  U.  S.  Steel  Corp.,  40  Sup.  Ct.  Rep.  293,  297,  298 
(1920)  ;  United  States  vs  Reading  Co.,  226  U.  S.  324,  352  (1911). 

23  Standard  Oil  Co.  vs  United  States,  221  U.  S.  1,  58  (1911). 


THE  RULES  OF  COMPETITION  7 

zation  with  monopolistic  intent  may  become  abnormal  because- 
of  their  far-reaching  and  certain  effect  in  eliminating  competi- 
tion.24 In  doubtful  cases,  the  normality  of  the  method  may  de- 
pend upon  the  intent  and  the  intent  may  be  inferred  both  from 
the  extent  of  the  control  secured  and  the  methods  used.25  If  the 
necessary  result  of  the  restraint  is  a  material  restriction  of 
competition,  intent  is  immaterial  or  at  least  is  presumed.28  If 
intent  were  essential  to  establish  a  violation  of  the  law,  it  would 
be  inferred  from  the  extent  of  the  control  secured  and  from  the 
methods  used.27  The  intent  of  the  parties  becomes  material 
only  where  there  is  a  threatened  rather  than  an  accomplished 
restraint  of  trade.  Then,  although  the  restraint  or  the  power 
to  restrain  may  not  yet  have  been  secured,  a  knowledge  of  the 
intent  may  enable  the  court  to  interpret  the  facts  and  predict 
the  probable  attainment  of  the  restraint,  enjoining  it  at  once 
for  the  protection  of  the  public.28  And  proof  of  intent  is  essen- 
tial in  an  alleged  "attempt  to  monopolize"  for  there  must  at 
least  be  shown  an  intent  in  order  to  create  a  dangerous  prob- 
ability of  the  restraint  resulting,  which  will  warrant  action  of 
the  court.29  The  alleged  good  intention  of  the  parties  will  not 
be  considered,  for  a  good  intention  can  not  excuse  a  public 
injury.30 

Facts  Peculiar  to  Industry. — The  facts  peculiar  to  the  par- 

2*  United  States  vs  Great  Lakes  Towing  Co.,  208  Fed.  733,  744  (1913). 

25  United  States  vs  Reading  Co.,  226  U.  S.  324,  370   (1911). 

26  United  States  vs  Trans-Missouri  Freight  Association,  166  U.  S.  290, 
340    (1897);    United  States  vs  Reading  Co.,  226  U.  S.  324,  370    (1911); 
United  States  vs  Swift  &  Co.,  196  U.  S.  375,  397  (1905)  ;   United  States  vs 
Patten,  226  U.  S.  526,  543  (1913)  ;  United  States  vs  Terminal  R.  R.  Asso- 
ciation, 224  U.  S.  383,  395  (1912). 

27  Standard  Oil  Co.  vs  United  States,  221  U.  S.  1,  75-76  (1911). 

28  Board  of  Trade  of  Chicago  vs  United  States,  246  U.  S.  231,  238 
(1917). 

29  United  States  vs  Swift  &  Co.,  196  U.  S.  375. 

so  Board  of  Trade  of  Chicago  vs  United  States,  supra;  United  States 
vs  Great  Lakes  Towing  Co.,  208  Fed.  733,  744  (1913)  ;  Thomson  vs  Cayser, 
243  U.  S.  85,  86  (1917)  ;  United  States  vs  Motion  Pictures  Co.,  225  Fed. 
800,  808  (1915);  Eastern  States  Retail  Lbr.  Dealers'  Assn.  vs  United 
States,  234  U.  S.  600,  613  (1914);  United  States  vs  Standard  Sanitary 
Mfg.  Co.,  226  U.  S.  20,  49  (1912)  ;  United  States  vs  Union  Pac.  R.  R.  Co., 
226  U.  S.  61,  93  (1912). 


8  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

ticular  business  or  industry  may  also  directly  bear  upon  the 
fairness  and  the  reasonableness  of  the  restriction. 

Where  there  is  an  unlimited  supply  of  raw  materials  and 
only  small  capital  is  needed  to  engage  in  the  business,  the  po- 
tential competition  of  others  who  would  be  attracted  to  the 
trade  if  high  prices  were  charged,  may  be  so  complete  a  protec- 
tion to  the  public  that  a  restraint  otherwise  unreasonable  might 
be  held  reasonable.31  An  agreement  between  persons  engaged 
in  quasi-public  employments,  monopolistic  in  character,  might 
be  held  unreasonable  on  slighter  grounds  than  an  agreement 
between  ordinary  commercial  competitors,  against  whom  the 
competition  of  other  parties  might  be  effective.32 

The  Clayton  Act.— The  so-called  Clayton  Act  of  1914  de- 
clares unlawful  certain  forms  of  price  discriminations,  exclu- 
sive or  tying  contracts,  holding  companies  cuid  interlocking  di- 
rectorates where  their  effect  may  be  to  substantially  lessen  com- 
petition or  to  tend  toward  monopoly.  This  act  supplements  but 
does  not  alter,  except  as  it  legalizes  certain  farmers'  and  labor 
organizations  as  such,  the  prohibitions  of  the  Sherman  Act.  Its 
purpose  was  to  prohibit  those  trade  practices  which  Congress 
felt  singly  and  of  themselves  were  not  covered  by  the  existing 
Anti-Trust  Acts,  with  the  idea  of  arresting  in  their  incipiency 
the  creation  of  monopolies  or  unreasonable  restraints  of  trade.33 
The  Sherman  Act  in  its  practical  application  dealt  almost  en- 
tirely with  consummated  restraints ;  the  Clayton  Act  defines 
and  prohibits  the  specific  methods,  even  though  used  by  one 
individual,  by  which  Congress  felt  unreasonable  restraints  of 
trade  might  be  attained.34  The  test  of  lawfulness  as  to  these 
practices  is  possibly  more  strict  than  the  test  of  the  Sherman 
Law.  The  Clayton  Act  is  directed-  at  the  potential  evils  in  these 
practices  and  the  test  is,  therefore,,  not  whether  they  unduly 

si  United  States  vs  American  Can  Co.,  ,230  Fed.  859,  900  (1916); 
United  States  vs  Quaker  Oats  Co.  et  al.,  232  Fed.  499,  502  (1916). 

32  United  States  vs  Whiting,  212  Fed.  466,  475  (1914)  ;  But  contra  see 
United  States  vs  Prince  Line,  220  Fed.  230,  232  (1915). 

33  Report  698,  Senate  Committee  on  Judiciary,  page  1,  63rd  Congress, 
2nd  Session.     For  copy  of  the  Act,  see  Appendix  B. 

34  United  Shoe  Machinery  Corp.  vs   United  States,  42   Sup.   Ct.   363 
(1922). 


THE  RULES  OF  COMPETITION  9 

restrict  competition,  but  whether  the  probable  effect  of  their 
use  would  be  substantially  to  lessen  competition  or  to  tend  to 
create  a  monopoly,  or  whether  they  place  it  within  the  power  of 
the  party  using  the  practice  to  accomplish  such  a  result.35 

Price  Discriminations. — Section  2  of  the  Clayton  Act  pro- 
hibits a  discrimination  in  price  in  domestic  trade36  between 
purchasers  where  its  effect  may  be  substantially  to  lessen  com- 
petition or  tend  to  create  a  monopoly  in  any  line  of  commerce. 
Prior  to  the  passage  of  the  Act,  it  had  been  a  common  practice 
of  great  concerns  with  a  large  distribution  to  sell  their  goods 
often  below  cost  in  territories  served  by  their  smaller  competi- 
tors, recouping  such  losses  by  increased  prices  in  non-competi- 
tive territory,  thereby  making  it  impossible  for  such  competitors 
to  continue  in  business  regardless  of  their  efficiency  and  the 
quality  of  their  product.37  There  are  numerous  exceptions  to 
this  prohibition.  Difference  in  price  made  because  of  differences 
(1)  of  grade,  (2)  of  quality,  (3)  of  quantity,  (4)  of  cost  of 
selling,  (5)  of  cost  of  transportation,  (6)  or  in  good  faith  to 
meet  competition  are  permitted.  The  seller  is  also  given  a  free 
right  to  select  his  own  customers  in  transactions  which  are 
bona  fide  and  not  in  restraint  of  trade.  Thus  'he  has  the  right 
to  make  different  prices  to  wholesalers  and  retailers  or  other 
general  classes  of  customers  in  the  absence  of  any  purpose  to 
restrain  trade.38 

Exclusive  Contracts. — Section  3  makes  it  unlawful  to 
make  leases,  sales  or  contracts  for  the  sale  of  any  commodity 
for  use,  consumption  or  resale  in  domestic  trade  or  to  fix  a 
price  to  be  charged  for  such  commodity  or  to  make  a  discount 
or  rebate  upon  such  price  on  the  condition,  agreement  or  un- 
derstanding that  the  lessee  or  purchaser  shall  not  use  or  deal 

35  Standard  Fashion  Co.  vs  Magrane-Houston  Co.,  42  Sup.  Ct.  360 
( 1922 )  ;  see  also  United  States  vs  United  Shoe  Machinery  Corp.,  42  Sup. 
Ct.  363  (1922)  ;  see  also  264  Fed.  138,  162-163;  234  Fed.  127,  150. 

ss/.e.,  the  United  States  or  any  territory  thereof,  the  District  of 
Columbia  or  any  insular  possession  or  other  place  under  the  jurisdiction  of 
the  United  States. 

37  Report  627,  House  Committee  on  Judiciary,  May  6,  1914,  page  8, 
63rd  Congress,  2nd  Session;  W.  H.  S.  STEVENS,  "Unfair  Competition," 
Chapter  I. 

vs  Goodyear  Tire  &  Rubber  Co.,  256  Fed.  570,  574  (1919). 


10  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

in  the  commodities  of  any  competitor  of  the  lessor  or  seller  where 
the  effect  of  such  practice  may  be  to  substantially  lessen  competi- 
tion or  tend  to  create  a  monopoly  in  any  line  of  commerce. 

This  practice,  especially  when  employed  by  a  large  concern 
with  a  patented  article  or  an  established  demand  for  its  product 
which  the  dealer  was  almost  compelled  to  supply,  enabled  such 
a  concern  often  to  exclude  weaker  competitors  from  many 
markets  and  was  condemned  by  the  Judiciary  Committee  of  the 
House  of  Representatives  as  one  of  the  "greatest  instrumen- 
talities of  monopoly  ever  devised  by  the  brain  of  man. ' ' 39  Pro- 
ceedings have  been  brought  by  the  Department  of  Justice,  by 
the  Federal  Trade  Commission,  and  by  private  parties  under 
this  section.40 

Intercorporate  Stockholding. — Section  7  prohibits  the  ac- 
quirement by  one  corporation  engaged  in  interstate  commerce  of 
the  stock  in  another  competing  corporation  engaged  in  interstate 
commerce,  or  the  acquisition  by  one  corporation  of  the  stock  of 
two  or  more  corporations  engaged  in  interstate  commerce  which 
are  competitors,  where  the  effect  of  such  acquirement  may  be 
substantially  to  lessen  competition  between  such  corporations  or 
to  restrain  sucK  interstate  commerce  in  any  section  or  com- 
munity or  to  tend  toward  monopoly  of  any  line  of  commerce. 
This  provision  does  not  apply  to 

(a)  the  purchase  of  stock  solely  for  investment  provided  no 
attempt  is  made  to  use  such  stock  to  bring  about  a  sub- 
stantial lessening  of  competition,  or  to 

(b)  the  formation  of  subsidiary  corporations  to  carry  on  the 
natural  legitimate  business  of  the  corporation  or  branches 
thereof  even  though  all  the  stock  is  held  by  the  joint 
company,  provided  the  effect  of  such  formation  is  not 
substantially  to  lessen  competition,  or  to 

39  Report  627,  House  Committee  on  Judiciary,  May  6,  1914,  page  13, 
63rd  Congress,  2nd  Session;  Report  698,  Senate  Committee  on  Judiciary, 
July  22,  1914,  page  8,  63rd  Congress,  2nd  Session. 

40  United   Shoe  Machinery  Corp.  vs   United  States,  42   Sup.   Ct.   363 
(1922);   Standard  Fashion  Co.  vs  Magrane-Houston  Co.,  42  Sup.  Ct.  360 
(1922)  ;  Standard  Oil  Co.  of  New  York  vs  Federal  Trade  Commission,  273 
Fed.  478  (1921) ;  Canfield  Oil  Co.  vs  Federal  Trade  Commission,  274  Fed. 
571  (1921). 


THE  RULES  OF  COMPETITION  11 

(c)  common  carriers  acquiring  stock  of  other  common  car- 
riers where  there  was  no  substantial  competition  between 
them. 

The  law  thus  recognizes  the  lawfulness  of  intercorporate  stock 
holding  for  the  ordinary  purposes  of  business  organization  and 
development,  but  prohibits  its  use  when  effecting  any  substan- 
tial lessening  of  competition.  The  latter  Congress  viewed  as 
an  '  *  abomination "  and  a  "mere  incorporated  form  of  old-fash- 
ioned trust. "  41  Of  course,  no  more  effective  method  of  con- 
trolling and  restricting  competition  could  be  devised  than  the 
control  of  a  competitor's  organization  through  ownership  of  its 
stock  or  a  controlling  interest  in  it.  It  is  expressly  provided 
that  this  section  shall  not  be  retroactive  in  its  effect. 

This  Section  has  been  qualified  by  Section  3,  of  the  Webb  Act 42 
which  legalizes  the  ownership  by  any  corporation  of  the  stock 
or  the  capital  of  any  corporation  engaged  solely  in  export  trade 
and  organized  solely  for  that  purpose  unless  the  effect  of  such 
acquisition  or  ownership  may  be  to  restrain  trade  or  substan- 
tially lessen  competition  within  the  United  States. 

Interlocking  Directorates. — Section  8  prohibits  so-called  in- 
terlocking directorates  and  provides  that  no  person  shall  be  at 
the  same  time  a  director  in  any  two  or  more  industrial  corpora- 
tions,43 any  one  of  which  has  capital,  surplus,  and  undivided 
profits  aggregating  more  than.  $1,000,000  and  which  is  engaged 
in  whole  or  in  part  in  interstate  commerce,  if  such  corporations 
are  or  have  been  so  substantially  in  competition  with  each  other 
that  the  elimination  of  competition  between  them  by  agree- 
ment would  constitute  a  violation  of  any  of  the  anti-trust  acts. 
This  section  was  designed  to  correct  the  far-reaching  concentra- 


41  Report  698,  Senate  Committee  on  Judiciary,  July  22,  1914,  page  14, 
63rd  Congress,  2nd  Session;   Report  627,  House  Committee  on  Judiciary, 
May  6,  1914,  page  17,  63rd  Congress,  2nd  Session. 

42  An  Act  to  Promote  Export  Trade  and  Other  Purposes,  April   10, 
1918,  40  Stat,  516,  see  Appendix  C. 

43  Banks,  banking  associations,  trust  companies  and  common  carriers 
are  excepted  from  this  specific  provision,  but  a  similar  provision  preventing 
interlocking  directorates  among  banking  institutions  appears  in  the  first 
paragraph  of  this  same  section  and  a  somewhat  similar  provision  applying 
to  common  carriers  appears  in  Section  10  of  the  act. 


12  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tion  of  control  in  the  hands  of  a  few  great  corporations,  the 
elimination  of  competition  and  other  serious  abuses  effected  by 
unity  of  management  of  any  corporation  through  common  di- 
rectors. Another  purpose  emphasized  in  the  committee  re- 
ports 44  is  perhaps  best  put  in  the  following  words  of  President 
Wilson  in  his  message  to  Congress,  Jan.  20,  1914,  urging  the 
adoption  of  this  legislation: 

"It  will  bring  new  men,  new  energies,  a  new  spirit  of  initiative,  new 
blood,  into  the  management  of  our  great  business  enterprises.  It  will 
open  the  field  of  industrial  development  and  origination  to  scores  of 
men  who  have  been  obliged  to  serve  when  their  abilities  entitled  them 
to  direct.  It  will  immensely  hearten  the  young  men  coming  on  and 
will  greatly  enrich  the  business  activities  of  the  whole  country." 

Personal  Liability. — By  Section  14  of  this  act,  violations  of 
the  penal  provisions  of  the  anti-trust  acts  by  any  corporation 
are  deemed  also  to  be  violations  by  the  particular  officers,  di- 
rectors or  agents  who  authorized  the  doing  or  did  such  acts  and 
punishment  by  way  of  fine  or  imprisonment  is  provided.  Vari- 
ous other  important  provisions  appear  in  this  statute  not  di- 
rectly affecting  the  subject  matter  discussed  in  this  chapter. 

Exceptions. — There  are  three  important  exceptions  to  the 
Sherman  Law.  The  first  is  embodied  in  the  so-called  Webb 
Act 45  enacted  in  1918  to  promote  our  export  trade.  It  is  therein 
provided  that  nothing  appearing  in  the  Sherman  Law  shall  be 
construed  as  declaring  to  be  illegal  an  association  actually  en- 
gaged solely  in  export  trade  or  organized  solely  for  such  pur- 
pose or  any  agreement  made  or  act  done  in  the  course  of  export 
trade  by  such  association  if  (a)  not  in  restraint  of  trade  within 
the  United  States  and  (b)  not  in  restraint  of  export  trade  of 
any  domestic  competitor  of  such  association  and  if  (c)  such  asso- 
ciation does  not  in  any  way  do  any  act  whatsoever  which  either 
artificially  or  intentionally  enhances  or  depresses  prices  within 
the  United  States  of  commodities  of  the  class  exported  by  such 

44  Report  698,   Senate  Judiciary  Committee,  July  22,   1914,  page   16, 
63rd  Congress,  2nd  Session;   Report  627,  House  Committee  on  Judiciary, 
May  6,  1914,  pages  18,  20,  63rd  Congress,  2nd  Session. 

45  An  Act  to  Promote  Export  Trade  and  for  Other  Purposes,  April  10, 
1918,  40  Stat.  516,  see  Appendix  C. 


THE  RULES  OF  COMPETITION  13 

association  or  substantially  lessens  competition  or  otherwise  re- 
strains trade  within  the  United  States.  The  use  of  unfair 
methods  of  competition  by  such  an  association  against  com- 
petitors engaged  in  export  trade  even  though  such  acts  are 
without  the  territorial  jurisdiction  of  the  United  States  is,  how- 
ever, prohibited. 

The  second  exception  appears  in  the  proviso  of  Section  6  of 
the  Clayton  Act  and  provides  that 

"Nothing  contained  in  the  Anti-Trust  Acts  shall  be  construed  to 
forbid  the  existence  and  operation  of  labor,  agricultural,  or  horticul- 
tural associations,  instituted  for  the  purposes  of  mutual  help,  and  not 
having  capital  stock  or  conducted  for  profit,  or  to  forbid  or  restrain 
individual  members  of  such  organizations,  from  lawfully  carrying  out 
the  legitimate  objects  thereof;  nor  shall  such  organization,  or  the 
members  thereof,  be  held  or  construed  to  be  illegal  combinations  or 
conspiracies  in  restraint  of  trade  under  the  anti-trust  laws." 

This  exception  passed  as  a  result  of  political  pressure  exerted 
by  labor  and  farmer  organizations,  was  heralded  by  them  as 
exempting  them  from  the  provision  of  the  anti-trust  laws.  As 
a  matter  of  fact,  however,  it  has  no  such  effect.  Such  organiza- 
tions are  legalized  as  organizations  so  that  they  may  not  be  dis- 
solved; but  any  such  organization  committing  acts  of  a  char- 
acter violating  the  Anti-Trust  Acts  remains  subject  to  the  pen- 
alty of  these  laws.46 

A  third  important  exception  embodying  an  entirely  new 
method  of  regulation  is  presented  by  the  Act  of  Feb.  8,  1922,47 

46  Duplex  Printing  Co.  vs  Deering,  254  U.  S.  443   ( 1921 )  ;  Paine  Lum- 
ber Co.  vs  Neal,  244  U.  S.  459    (1915)  ;   United  States  vs  King,  250  Fed. 
908    (1916);   see  The  Status  of  Farmers'  Cooperative  Associations  under 
Federal  Law,  Journal  of  Political  Economy,  vol.  26,  7,  July,   1921,  page 
595  if.     A  practical  exception,  however,  appears  in  the  appropriations  act 
of  1914,  36  Stat.  at  Large,  Chapter  1,  page  53,  making  appropriations  for 
the  Department  of   Justice  wherein   it  is   provided  that  no  part  of   the 
appropriations  shall  be  expended  for  the  prosecution  of  producers  of  farm 
products  and  associations  of  farmers  who  cooperate  and  organize  in  an 
effort  to  and  with  the  purpose  to  obtain  a  fair  and  reasonable  price  for 
their  product. 

47  Federal   Statutes  Ann.;    Pamphlet  Supplement,   April,    1922,   p.   1, 
Appendix  D. 


A 


14  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

authorizing  associations  of  producers  of  agricultural  products. 
This  law  legalizes  cooperative  associations  of  this  character,  pro- 
vided they  are  operated  for  mutual  benefit  and  either  allow 
each  member  only  one  vote  or  do  not  pay  dividends  in  excess  of 
8  per  cent  annually,  and  provided  they  do  not  deal  in  the  prod- 
ucts of  non-members  to  an  amount  greater  in  value  than  such 
as  are  handled  for  members.  By  implication,  it  frees  such  asso- 
ciations, although  they  may  be  engaged  to  a  considerable  extent 
in  ordinary  trade,  from  punishment  for  all  restraints  of  trade, 
except  those  which  result  in  an  undue  enhancement  of  price. 
Jurisdiction  is  placed  in  the  Secretary  of  Agriculture  to  issue 
complaint,  hold  hearings,  and  issue  an  order  to  cease  and  desist, 
in  the  event  such  a  restraint  is  practiced.  Procedure  is  pro- 
vided for  appeal  to  the  district  courts.  The  effect  of  this  statute 
is  therefore  to  weaken  the  Sherman  Law  and  to  provide  for  an 
indirect  method  of  price  control  by  an  administrative  officer, 
subject  to  review  by  the  courts. 

Federal  Trade  Commission  Act. — The  Federal  Trade  Com- 
mission Act  passed  in  1914  declares  unlawful  the  use  of  un- 
fair methods  of  competition  in  interstate  and  foreign  com- 
merce.48 

As  changing  conditions  inevitably  develop  many  novel  com- 
petitive methods,  Congress,  in  enacting  the  Federal  Trade  Com- 
mission Act,  deemed  it  unwise  to  attempt  to  define  the  many 
variable  forms  of  unfair  competition;  but  made  the  general 
prohibition  condemning  all  unfair  methods,  leaving  it  to  the 
Federal  Trade  Commission,  created  by  the  Act,  to  determine, 
subject  to  review  by  the  courts,  the  fairness  or  unfairness  of 
specific  practices  as  presented.49  Unfair  methods  of  competi- 
tion divide  themselves  into  two  general  classes.  The  first  class 
consists  of  those  competitive  practices  which  are  opposed  to 
good  morals  because  characterized  by  deception,  bad  faith,  fraud 
or  oppression ;  the  second  class  are  those  which  are  unfair  from 
an  economic  standpoint  and  against  public  policy  because  of 

4838  Stat.  717:  Appendix  E. 

49  Conference  Report  1142,  Sept.  4,  1914,  page  19,  63rd  Congress,  2nd 
Session;  Report  597,  Senate  Committee  on  Interstate  Commerce,  July  13, 
1914,  page  13,  63rd  Congress,  2nd  Session;  Federal  Trade  Commission  vs 
Beech-Nut  Packing  Co.,  42  Sup.  Ct.  Rep.  150,  154  (1922). 


THE  RULES  OF  COMPETITION  15 

their   dangerous   tendency    unduly    to    hinder    competition    or 
create  monopoly.50 

As  to  the  first  group  of  practices,  the  test  of  unfairness  in- 
volves merely  the  application  of  the  existing  moral  standards 
of  society  as  to  what  is  honest  and  fair.51  There  is  a  clear  group 
of  practices  which  the  common  judgment  of  business  men  and 
the  public,  condemn  as  fraudulent,  dishonest  or  deceptive,  and 
if  any  such  act  injures  competitors,  and  operates  to  the  preju- 
dice of  the  public  in  any  material  way,  it  is  unlawful.52  Mis- 
branding  is  a  typical  practice  of  this  character.53  Among  the 
numerous  methods  of  this  type,  which  have  already  been  con- 
demned by  the  Commission,  the  following  may  be  mentioned 
as  typical:  false  advertising,54  sale  of  adulterated  products  as 
pure,55  the  maintenance  of  bogus  independent  companies,56  in- 
ducing breach  of  contract,57  the  payment  of  money  to  employees 
of  customers  to  induce  the  purchase  of  goods,58  espionage,59 
fraudulent  demonstrations  of  competitive  goods  for  purposes  of 
disparagement,60  deceptive  imitation  of  competitive  products,61 
false  claims  of  patents,62  the  selling  of  old  or  rebuilt  goods  as 
new.63 

so  Federal  Trade  Commission  vs  Gratis,  253  U.  S.  421,  427  (1919); 
Federal  Trade  Commission  vs  Beech-Nut  Packing  Co.,  42  Sup.  Ct.  Rep.  150, 
154  (1922);  Sears  Roebuck  &  Co.  vs  Federal  Trade  Commission,  258 
Fed.  307. 

si  Curtis  Publishing  Co.  vs  Federal  Trade  Commission,  270  Fed.  881, 
908  (1921). 

52  Federal  Trade  Commission  vs  Winsted  Hosiery  Co.,  42  Sup.  Ct. 
384  (1922). 


54  Federal  Trade  Commission  vs  Silvex  Co.,   1   F.  T.  C.  301. 

55  Federal  Trade  Commission  vs  Polomo  Specialty  Mfg.  Co.  et  al.,  2 
F.  T.  C.  195. 

56  Federal  Trade  Commission  vs  Fleischmann  Co.,  1  F.  T.  C.  119. 

57  Federal  Trade  Commission  vs  Stanley  Booking  Corp.,  1  F.  T.  C.  212. 
ss  Federal  Trade  Commission  vs  Arne  Meyer,  2  F.  T.  C.  107. 

89  Federal  Trade  Commission  vs  American  Agricultural  Chemical  Co. 
et  al.,  1  F.  T.  C.  226. 

eo  Federal  Trade  Commission  vs  Munzen  Specialty  Co.,  1  F.  T.  C.  30. 

si  Federal  Trade  Commission  vs  Block  and  Co.,  1  F.  T.  C.  154. 

'62  Federal  Trade  Commission  vs  Gartside  Iron  Rust  Soap  Co.,  1 
F.  T.  C.  310. 

«3  Federal  Trade  Commission  vs  E.  P.  Janes  et  al.,  1  F.  T.  C.  380. 


16  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

As  to  the  second  group  of  unfair  methods,  the  test  of  un- 
lawfulness is  whether  the  practice  has  a  pronounced  tendency 
to  hinder  competition  unduly.  The  act  is  more  comprehensive 
than  the  Sherman  Act,  for  it  not  only  covers  combined  action, 
but  also  clearly  prohibits  single  acts  by  a  single  individual,  which 
have  a  dangerous  tendency  to  bring  about  the  result  prohibited 
by  the  Sherman  Law.  Intent  need  not  be  proved,  nor  is  proof 
of  a  substantial  effect  in  unduly  hindering  competition  neces- 
sary, but  only  a  reasonably  clear  probability  of  such  an  effect. 
Typical  of  practices,  held  to  be  unfair  because  of  their  economic 
effect  in  hindering  competition,  are  attempts  to  control  the 
channels  of  distribution,64  resale  price  maintenance  systems,65 
and  the  like.  The  following  are  suggestive  of  the  types  of  prac- 
tices condemned  by  the  Commission  because  of  this  dangerous 
tendency  to  eliminate  competitors  and  thus  deprive  the  public 
of  the  benefits  of  free  competition :  boycotts  and  blacklists,66  ex- 
cessively high  bidding  to  shut  off  competitors'  supplies,67  the 
purchase  of  competitors'  goods  from  dealers  to  prevent  their 
distribution  or  use,68  and  the  like. 

There  seems  to  be  a  tendency  also  for  the  courts  to  hold  that 
practices  unfair  to  the  public,  such  as  agreements  fixing  prices, 
dividing  territory,  classifying  customers,  which  suppress  com- 
petition between  the  parties  to  them  although  they  do  not  in- 
jure competitors,  are  within  the  jurisdiction  of  the  Commission.69 
There  must  be  an  element  of  public  interest  involved  to  war- 
rant action  by  the  Commission.  In  the  first  class  of  practices 

e*  National  Harness  Manufacturers'  Assn.  vs  Federal  Trade  Commis- 
sion, 268  Fed.  705  (1920)  ;  Wholesale  Grocers'  Assn.  of  El  Paso  vs  Federal 
Trade  Commission,  277  Fed.  657  (1922)  ;  California  Wholesale  Grocery  Co. 
et  al.  vs  Federal  Trade  Commission,  275  Fed.  725  (1921). 

OB Federal  Trade  Commission  vs  Beech-Nut  Packing  Co.,  42  Sup.  Ct. 
Rep.  150  (1922). 

66  Federal  Trade  Commission  vs  Wholesale  Saddlery  Assn.   et  al.,   1 
F.    T.    C.   335;    Federal    Trade    Commission   vs    Western    Sugar    Refinery 
et  al.,  2  F.  T.  C.  151. 

67  Federal  Trade  Commission  vs  American  Agricultural  Chemical  Co., 
1  F.  T.  C.  226. 

es  Federal  Trade  Commission  vs  Fleischmann  Co.,  1  F.  T.  C.  119. 

69  Texas  Co.  et  al.  vs  Federal  Trade  Commission,  273  Fed.  478,  482 
(1921)  ;  see  also  Federal  Trade  Commission  vs  Beech-Nut  Packing  Co.,  42 
Sup.  Ct.  Rep.  150,  155  (1922). 


THE  RULES  OF  COMPETITION  17 

the  public  interest  would  certainly  be  the  protection  of  both  the 
public  and  competitors  against  fraud  or  deception,70  while  as 
to  the  second  class  of  practices,  the  public  interest  would  ap- 
pear when  any  method  is  employed  which  tends  to  restrain  or 
eliminate  the  status  of  free,  fair  competition  which  the  public 
policy  of  this  country  demands  should  be  maintained.71  In  the 
latter  type  of  practices  in  determining  the  tendency  of  the 
practice  to  hinder  competitors  unduly,  such  factors  as  the  free- 
dom of  access  of  competitors  to  the  consumer,  the  absence  of 
monopoly,  and  the  non-deprivation  of  the  public  of  any  right  of 
facilities  are  elements  properly  to  be  considered.72 

Probably  to  a  considerable  degree,  the  same  sort  of  test  ap- 
plied in  determining  undue  restraints  of  trade  can  be  applied 
to  determine  whether  or  not  a  practice  has  a  dangerous  ten- 
dency to  unduly  hinder  competition.  If  the  act  is  employed  to 
such  an  extent  as  to  become  a  method,  if  its  effect  in  hindering 
competitors  from  freely  doing  their  business  is  substantial,  if  its 
nature  is  such  as  tend  to  eliminate  or  seriously  embarrass  com- 
petitors, regardless  of  their  equal  efficiency,  such  a  practice  is 
unfair  from  an  economic  standpoint.73  Likewise  there  would 
seem  to  be  equal  reason  for  holding  that  if  the  intent  of  the 
party  using  the  practice  was  clearly  to  unduly  hinder  the  com- 
petition of  his  fellow  traders,  the  law  should  apply  regardless 
of  whether  or  not  the  effect  has  been  secured  for  the  basic  pur- 
pose of  the  law,  as  already  stated,  was  to  prevent  at  their  very 
inception,  practices  which  might  tend  to  the  undue  restriction 
of  competition. 

Webb  Export  Act.— The  Webb  Export  Act  enlarged  the 
jurisdiction  of  the  Federal  Trade  Commission  by  providing  that 
the  prohibition  against  unfair  methods  of  competition  contained 
in  the  Commission  Act  should  be  construed  as  extending  to  such 

70  Federal   Trade   Commission  vs  Winsted  Hosiery   Co.,   42  Sup.   Ct. 
384  (1922). 

71  Federal  Trade  Commission  vs  Beech-Nut  Packing  Co.,  42  Sup.  Ct. 
Rep.  150   (1922). 

72  Curtis  Publishing  Co.  vs  Federal  Trade  Commission,  270  Fed.  881, 
914  (1921). 

T a  See  Sears  Roebuck  &  Co.  vs  Federal  Trade  Commission,  258  Fed. 
307,  311  (1919). 


18  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

methods  used  in  export  trade  against  competitors  engaged  in 
export  trade  even  though  the  acts  constituting  such  methods  are 
done  outside  the  territorial  jurisdiction  of  the  United  States.74 

Dumping  Act  of  Sept.  8,  1916. — In  the  Revenue  Act  of 
September  8,  1916,  the  systematic  dumping  of  foreign  goods  in 
this  country  at  a  price  substantially  below  the  actual  market 
value  or  wholesale  price  of  such  goods  in  the  country  of  their 
production  at  the  time  of  their  exportation  is  prohibited  as  un- 
fair competition  if  done  with  the  intent  of  destroying,  injuring 
or  preventing  the  establishment  of  an  industry  in  the  United 
States,  or  if  such  action  restrains  or  monopolizes  any  part  of 
commerce  in  such  article  in  this  country.75 

Packers  and  Stockyards  Act  of  1921.™ — One  important  limi- 
tation has  been  placed  on  the  jurisdiction  of  the  Federal  Trade 
Commission.  Under  an  act  of  Congress  passed  in  1921,  the 
regulation  of  the  competitive  acts  of  the  meat  packers,  with 
reference  to  transactions  not  only  in  meats  and  meat  products, 
but  also  in  dairy  products,  poultry  and  eggs,  is  taken  from  the 
Commission  and  placed  under  the  direction  of  the  Department 
of  Agriculture.  The  prohibitions  of  this  act  are  much  more 
severe  than  the  Federal  Trade  Commission  Act.  An  anomalous 
situation,  however,  is  created.  Manufacturers  and  distributors 
of  dairy  products,  poultry  and  eggs  are  subject  to  the  jurisdic- 
tion of  the  Commission,  meat  packers  engaged  also  in  handling 
these  products  are  subject  only  to  the  jurisdiction  of  the  De- 
partment of  Agriculture. 

Summary. — It  may  be  helpful  to  summarize  briefly  the 
conclusion  of  the  writer  as  to  what  constitutes  a  violation  of 
the  laws  regulating  competition.  So  far  as  the  Sherman  Act  is 
concerned,  these  principles  may  be  stated. 

First,  the  law  prohibits  any  and  all  unreasonable  restraints 
of  trade.  No  subterfuge,  no  indirect  method  of  accomplishing 
such  a  restraint,  is  knowingly  condoned  by  the  courts. 

Second,  the  unreasonableness  of  a  restraint  depends  upon  its 

74  An  Act  to  Promote  Export  Trade  and  for  Other  Purposes,  April  10, 
1918,  Sec.  4,  40  Stat.  516. 

75  Act  of  Sept.  8,   1916,   title  VIII,   Sec.   801;    Fed.   Stat.  Ann.    1918 
Supp.,  p.  571 — see  Appendix  C. 

76  Fed.  Stat.  Ann.  1921  Supp.,  p.  287. 


THE  RULE 8  OF  COMPETITION  19 

nature,  its  extent,  its  effect,  and  in  some  instances,  upon  the  in- 
tent of  those  who  impose  it.  Any  concerted  action  which  coerces 
competitors  and  seriously  hinders  their  competition  is  unreason- 
able. The  courts  are  zealous  in  their  determination  to  protect 
individual  traders  from  coercion,  or  interference,  by  concerted 
acts  of  their  competitors.  Any  voluntary  concerted  action, 
which  directly  lessens  competition  between  the  parties  in  price, 
terms,  quality  or  service,  in  a  substantial  way,  is  unreasonable. 
By  substantial  is  meant,  not  a  theoretical,  but  a  considerable  or 
material  lessening  of  competition.  In  other  words,  the  trade  re- 
strained must  have  substance,  its  volume  must  be  of  sufficient 
importance  that  the  restraint  affects  enough  persons  to  make 
action  by  the  government  really  in  the  public  interest.  This 
does  not  mean  that  its  effect  must  be  nationwide.  A  restraint 
localized  in  a  single  city  can  be  unlawful  if  it  affects  a  material 
volume  of  interstate  traffic.  The  trivial  and  the  incidental  in- 
direct restraints  such,  for  example,  as  the  regulating  of  busi- 
ness hours,  which  are  often  compelled  by  the  necessities  of  ef- 
ficient business  operation,  and  do  not  harm  the  public,  are  not 
condemned.  But  any  action  which  conflicts  with  the  public  in- 
terest by  increasing  prices,  deteriorating  quality,  restricting 
terms  or  eliminating  necessary  service  on  any  considerable  vol- 
ume of  goods  in  interstate  commerce  violates  the  law.  If  the  in- 
tention of  the  parties  to  substantially  lessen  competition  is 
clearly  shown,  the  intent  creates  a  dangerous  probability  of  the 
restraint  being  accomplished,  which  will  warrant  governmental 
action  before  the  effect  on  competition  is  procured. 

To  avoid  possible  violation  of  the  Clayton  Act,  a  business 
man  should  not  discriminate  in  price  between  the  same  class  of 
customers  on  the  same  grade,  quality,  or  quantity,  of  the  com- 
modity sold,  except  when  necessary  to  meet  the  price  of  his 
competitors,  nor  should  he  enter  into  any  understandings  with 
customers,  express  or  implied,  that  they  will  not  use  or  deal  in 
the  goods  of  competitors.  If  he  desires  to  risk  a  possible  vio- 
lation of  the  law  by  the  use  of  such  practices,  he  should  remem- 
ber that  when  the  effect  of  their  use  creates  a  probability  that 
they  will  substantially  lessen  competition  or  tend  toward 
monopoly  a  violation  occurs.  The  use  of  these  practices  in  any 
way  is  therefore  dangerous.  A  corporation  should  not  purchase 


20  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

stock  in  a  competing  concern  engaged  in  interstate  commerce, 
where  the  effect  of  such  acquisition  will  probably  lessen  competi- 
tion between  them.  Nor  should  a  person  serve  as  a  director  for 
competing  companies,  one  of  which  has  a  capital  surplusf  and 
undivided  profits  aggregating  more  than  $1,000,000  if  they  are 
so  directly  in  competition  with  each  other  that  an  agreement 
between  them  to  eliminate  competition  would  amount  to  a  viola- 
tion of  the  Sherman  Law. 

Finally,  it  should  also  be  borne  in  mind  that  competitive 
methods,  which  are  fraudulent  or  deceptive,  as  well  as  methods 
which  create  a  dangerous  probability  that  competitors  will  be 
unduly  hindered  in  the  conduct  of  their  business,  or  that  a 
monopolistic  control  will  be  secured,  are  subject  to  certain  con- 
demnation by  the  Federal  Trade  Commission. 


CHAPTER  II 

THE  PURPOSE  OF  THE  LAWS  REGULATING 
COMPETITION 

THE  laws  regulating  competition  are  of  large  social,  economic 
and  political  significance.  They  are  badly  misunderstood  by 
the  average  business  man  whose  direct  contact  with  them 
usually  occurs  when  they  directly  restrict  his  liberty  of  trade. 
The  far-reaching  indirect  benefits  of  the  legislation  is  seldom, 
if  ever,  brought  to  his  attention.  While  primarily  enacted  to 
protect  the  public,  to  the  overwhelming  majority  of  business 
men,  these  statutes  afford  the  only  protection  against  coercion, 
oppression  and  possibly  even  the  destruction  of  their  enter- 
prises. 

Protection  of  Efficient. — The  thought  behind  the  Anti-Trust 
Acts  is  that  a  status  of  free,  fair  competition  must  be  pre- 
served as  the  foundation  of  trade  and  commerce  in  order  that 
the  survival  of  men  in  business  shall  be  determined  by  their 
efficiency  rather  than  by  artificial  factors.1  This  thought  is 
expressed  in  the  Corn  Products  case,  cited  supra,  in  the  follow- 
ing language: — 

"The  means  forbidden  have  been  evolved,  often  empirically,  be- 
cause of  the  slow  recognition  that  they  make  for  the  disorganization  of 
industry  and  of  the  depression  of  a  competing  producing  capacity 
which,  if  left  alone  could  compete  upon  even  terms.  While  the  statute 
under  this  theory  relies  upon  competition  as  a  proper  stimulus  to  the 
maintenance  of  industrial  advance  and  as  the  chief  protection  to  the 
consumer,  it  takes  a  long  view,  not  a  short.  It  recognizes  that  with 

i  United  States  vs  Motion  Picture  Co.  et  al,  225  Fed.  800,  802  (1915) ; 
United  States  vs  Corn  Products  Co.,  234  Fed.  964,  1012,  1013,  1015  (1916)  ; 
United  States  vs  United  Shoe  Machinery  Corp.,  247  U.  S.  32,  47,  53,  56 
(1917);  United  States  vs  Reading  Co.  et  al.,  40  Sup.  Ct.  Rep.  425,  432; 
see  also  the  able  treatise  by  W.  H.  S.  STEVENS  on  "Unfair  Competition," 
p.  5. 

21 


22  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  customer  in  the  end  must  lie  the  decision  between  producers,  and 
that  those  who  fail  to  secure  the  market  by  the  quality  and  cost  of 
their  service  must  pass  out  of  the  field  but  it  does  not  identify  perma- 
nent capacity  with  the  inability  to  endure  a  transitory  or  local  appeal 
to  customers.  Its  presupposition  is  that  there  may  well  be  competitors 
capable  in  the  end  of  giving  a  service  which  will  serve  the  public  as 
well  as  their  neighbors,  who  may  yet  succumb  to  concerted  competi- 
tion apparently  more  serviceable,  but  only  because  it  is  temporary,  and 
is  put  forward  with  no  purpose  of  universal  application." 

It  appears  to  be  the  view  of  the  courts  that  monopolies  cannot 
be  acquired  and  maintained  by  superior  efficiency  alone  because 
capacity  and  ability  is  so  generally  distributed  among  mankind 
that  its  monopolization  is  a  practical  impossibility.2  A  similar 
position  is  taken  by  some  of  the  leading  economists  of  this 
country,3  who  maintain  that  no  one  concern  can  monopolize 
efficiency  and  that  it  is  primarily  the  use  of  unfair  methods  and 
undue  restraints  which  create  and  perpetuate  monopoly.  The 
law  has  no  concern  for  the  inefficient  producer  who  is  unable 
to  meet  the  fair  competition  of  his  more  efficient  competitors; 
but  it  holds  the  public  is  entitled  to  the  free  play  of  industrial 
power  and  competitive  efficiency  which  traders  are  able  to  de- 
velop, and  improper  restraints  imposed  on  competitors  are 
viewed  as  a  social  evil.4  Magnitude  alone  acquired  through 
efficient  fair  methods  is  not  condemned.5  Large  scale  produc- 
tion or  the  integration  of  non-competitive  units  is  not  objection- 
able for  there  is  no  purpose  expressed  in  the  Sherman  Law  to 
reduce  manufacture  to  isolated  units  of  the  lowest  degree.6 
The  law  intends  that  the  honest  efficient  business  man  shall  be 

2  United  States  vs  U.  S.  Steel  Corp.,  223  Fed.  51,  163;  Patterson  vs 
United  States,  222  Fed.  599,  619  (1915);  Standard  Oil  Co.  vs  United 
States,  221  U.  S.  1,  55  (1911). 

s  See  W.  H.  S.  STEVENS,  "Unfair  Competition,"  Chap.  13:  University  of 
Chicago  Press. 

4  United  States  vs  Corn  Products  Co.,  234  Fed.  964,  1012,  1013,  1015 
(1916). 

5  United  States  vs  U.  S.  Steel  Corp.,  40  Supreme  Court  Reporter,  293, 
298;    United  States  vs   United  Shoe  Machinery   Corp.,   247   U.   S.   32,   56 
(1917). 

e  United  States  vs  United  Shoe  Machinery  Corp.,  247  U.  S.  32,  45 
(1917);  United  States  vs  Winslow,  227  U.  S.  202,  217. 


PURPOSE  OF  REGULATING  LAWS  23 

protected  from  unfair  and  dishonest  methods  of  competition  or 
from  combined  action  to  restrain  his  trade.  It  intends  too  that 
the  public  shall  have  the  benefit  of  the  competition  of  all  com- 
petitors who  are  efficient  enough  to  survive,  unrestrained  by  any 
conspiracy,  combination  or  agreement.  The  legal  application 
of  the  competitive  theory  is  not  the  laissez  faire  economic  theory 
of  a  merciless  and  wholly  uncontrolled  competition  but  rather 
that  of  a  regulated  competition  preserving  and  protecting  the 
efficient  and  guaranteeing  to  the  public  the  benefits  of  competi- 
tion between  them.  It  abhors  monopoly  and  is  designed  to 
preserve  the  spirit  of  democracy  in  industry  by  requiring  that 
the  good  of  the  majority  shall  control. 

Preservation  of  Individual  Opportunity. — These  laws  are  de- 
signed to  preserve  individual  initiative  and  opportunity.7  To 
quote  the  language  of  a  Federal  Court,  they  are  based  upon  the 
inherent  "right  of  every  individual  to  choose  his  own  calling  in 
life  and  to  follow  the  trade  of  his  choice  unhampered  by  any 
undue  and  any  unfair  interference  from  others. ' ' 8  The  whole 
policy  of  the  law  is  opposed  to  combined  actions  that  "repress 
individual  enterprise. ' ' 9  Perhaps  in  no  other  country  is  there 
such  an  opportunity  to  win  business  success  and  rise  to  the  fore- 
most ranks  of  society.  Men  with  vision  but  limited  capital  are 
constantly  achieving  amazing  success  in  industry.  It  would  be 
an  irretrievable  loss  to  society  were  monopoly  to  become  the 
rule  in  industry  making  every  man  a  hired  man.10  In  the 
Trans-Missouri  Freight  Association  case,  cited  above,  the  Su- 
preme Court  of  the  United  States  long  ago  in  discussing  the 
economic  changes  forced  by  combinations  in  restraint  of  trade, 
emphasized  this  phase  of  the  Anti-Trust  Acts  in  the  following 
language : 

"It  is  not  for  the  real  prosperity  that  such  changes  should  occur 
which  result  in  transferring  an  independent  business  man,  the  head  of 

7  United  States  vs  International  Harvester  Co.,  214  Fed.  987,    1001 
(1914)  ;  United  States  vs  Trans-Missouri  Freight  Assn.,  166  U.  S.  290,  323. 
s  United  States  vs  Motion  Picture  Co.,  225  Fed.  800,  802    (1915). 

9  Motion  Picture  Co.  vs  United  States,  193  U.  S.  197,  341   (1902). 

10  See  United  States  vs  Trans-Missouri  Freight  Assn.,  166  U.  S.  290, 
323,  324;  State  vs  Standard  Oil  Co.,  48  Ohio  State  37. 


24  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

his  establishment  small  though  it  might  be,  into  a  mere  servant  or 
agent  of  a  corporation  for  selling  the  commodities  which  he  once 
manufactured  or  dealt  in,  having  no  choice  in  shaping  the  business 
policy  of  the  company  and  bound  to  obey  orders  issued  by  others." 

The  control  of  the  futures  of  men  and  their  descendants  in  the 
hands  of  a  few  men  dominating  our  industries  is  unthinkable 
and  its  effect  upon  the  initiative,  ambitions  and  spirit  of  man, 
inconceivable.  The  progressive,  broad-thinking  business  man  of 
America  can  have  no  sympathy  with  a  governmental  policy 
legalizing  monopoly. 

Encouragement  of  Invention. — Consider  also  the  effect  of 
monopoly  upon  the  inventor.  The  present  laws  afford  a  stimu- 
lus to  and  a  market  for  inventive  genius.  The  stern  forces  of 
competition  have  compelled  business  men  to  search  for  and 
adopt  every  means  for  reducing  their  costs  and  improving  their 
methods  of  manufacture  and  distribution.  The  inventor  has 
thus  been  assured  of  a  strong  market  for  his  inventions.  The 
effects  upon  society  of  the  inventions  employed  by  American  in- 
dustry in  the  past  in  increasing  the  productivity  of  capital,  in 
improving  the  quality  of  products,  in  raising  the  standards  of 
living  of  labor  and  consumer,  is  incalculable.  If  monopoly  is 
to  be  the  rule,  what  will  be  the  result  ?  Does  the  monopoly  forti- 
fied by  huge  capital  and  absolute  control  of  industry  need  to 
exert  itself  in  a  search  of  improvements  of  its  products  or  its 
methods  of  manufacture?  Not  only  would  the  inventor,  under 
a  monopolistic  system  of  industry,  find  his  market  absolutely 
monopolized  but  also  his  sole  possible  buyer  in  a  position  where 
there  would  be  no  compelling  need  for  the  inventions  he  might 
have  to  offer.  The  tendency  under  such  a  system  to  stifle  the 
inventive  genius  of  the  American  people,  of  which  we  have  been 
so  proud  and  which  has  made  such  great  contributions  to  the 
progress  of  American  industry,  is  self-apparent.11 

Protection  of  Producers  of  Raw  Material.— Our  public  pol- 
icy is  also  opposed  to  monopolies  and  restraints  of  trade  because 

11  The  British  government,  even  in  its  joint  research  work  with  trade 
associations,  is  taking  steps  to  see  that  trade  combinations  engaging  in 
such  work  shall  not  impose  on  the  rights  of  poor  inventors,  in  order  that 
inventions  may  be  encouraged.  See  Report  of  the  Committee  of  the  Privy 
Council  for  Scientific  and  Industrial  Research  1916-17,  page  43. 


PURPOSE  OF  REGULATING  LAWS  26 

of  their  power  to  depress  the  prices  of  raw  materials  to  pro- 
ducers.12 The  power  of  a  monopoly  as  the  sole  buyer  of  the 
available  supply  of  raw  materials  would  enable  it  to  depress 
prices  to  such  an  extent  that  thousands  of  producers  would  be 
deprived  of  a  fair  profit  for  their  product  and  held  to  the  low- 
est price  which  would  keep  them  producing.  Public  policy  de- 
mands the  protection  of  the  millions  of  producers  in  this  coun- 
try and  their  rights  to  a  fair,  reasonable  return  for  the  prod- 
ucts of  their  labor  and  capital.  It  can  not  permit  any  group 
arbitrarily  to  divert  such  returns  to  themselves. 

Protection  of  Labor. — Perhaps  to  a  lesser  extent,  the  laws 
are  designed  to  protect  labor  so  that  it  shall  not  be  universally 
handicapped  in  any  effort  to  protect  itself  against  the  huge 
power  of  monopoly  in  order  that  the  returns  which  would 
properly  go  to  labor  shall  not  be  diverted  artificially  to  the 
monopoly.13 

Dangers  of  Unregulated  Competition  to  Industry. — The 
danger  to  the  individual  from  a  total  lack  of  regulation  of  com- 
petition on  the  other  hand  is  equally  as  great  as  the  legalization 
of  monopoly.  Were  the  government  to  lessen  the  restrictions  of 
our  Anti-Trust  Laws,  the  business  man  would  constantly  find 
himself  confronted  by  almost  irresistible  combinations  taking 
away  from  him  the  management  and  control  of  his  own  business. 
Does  he  want  to  permit  unlimited  combinations  among  the  pro- 
ducers of  his  raw  materials  who  can  dictate  to  him  the  price  he 
shall  pay  and  the  portion  of  the  supply  that  shall  be  allotted 
to  him?  Does  he  want  it  made  lawful  for  labor  unions  to 
destroy  his  whole  system  of  distribution  by  secondary  boycotts 
against,  and  blacklists  of  any  one  who  will  buy  from  him  ?  Does 
he  want  it  made  lawful  for  his  competitors  to  persuade  or 
coerce  whole  units  of  an  industry  to  boycott  him  with  impunity  ? 
Does  he  want  to  have  associations  of  distributors  dictate  to 
whom  he  shall  sell,  the  terms  of  sale  and  so  on,  as  a  consideration 

12  United  States  vs  International  Harvester  Co.,  214  Fed.  987,  1005; 
United  States  vs  Whiting,  212  Fed.  466,  477  (1914);  United  States  vs 
Keystone  Watch  Case  Co.,  218  Fed.  502,  518  (1915). 

is  United  States  vs  International  Harvester  Co.,  214  Fed.  987,  1005; 
United  States  vs  Keystone  Watch  Case  Co.,  218  Fed.  502,  518  (1915); 
United  States  vs  U.  8.  Steel  Corp.,  223  Fed.  55,  61  (1915). 


26  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

of  his  securing  any  business?  Or  if  he  is  a  wholesaler,  does 
he  want  the  manufacturers  given  a  free  hand  to  enter  into  any 
conspiracy  to  shut  off  his  source  of  supplies  and  use  their  con- 
trol of  production  to  effect  a  boycott  of  the  wholesaler  by  the 
retailer?  Or  do  the  retailers  want  to  be  in  the  position  where 
they  will  be  at  the  mercy  of  organizations  of  manufacturers  or 
wholesalers  so  far  as  prices,  terms,  service  and  quality  of  the 
goods  they  sell,  are  concerned?  All  these  restraints  and  many 
more  have  been  attempted  by  various  factions  of  American  in- 
dustry and  prohibited  under  the  Anti-Trust  Acts.  The  lawyer 
who  has  really  studied  the  history  of  the  Anti-Trust  Acts  must 
be  deeply  impressed  with  the  fact  that  they  are  an  invaluable 
protection  to  the  great  mass  of  business  men  of  this  country. 
Surely  it  behooves  any  business  man  to  consider  with  minute 
care  any  amendments  designed  to  weaken  the  application  of  any 
laws  regulating  competition. 

These  laws  even  now,  because  of  their  incomplete  enforce- 
ment, often  fail  to  give  him  the  protection  to  which  he  is  en- 
titled. 

Underlying  the  whole  legislation  of  course  and  the  real  cause 
for  its  enactment  are  broad  conceptions  of  public  policy  demand- 
ing the  protection  of  the  general  public  from  the  many  evils 
which  flow  from  unreasonable  restraints  of  competition.14  These 
evils,  it  was  felt,  constitute  a  public  danger,  giving  rise  to  seri- 
ous social,  industrial  and  political  problems.15 

Protection  Against  Enhancement  of  Price. — The  almost 
certain  effect  of  these  laws  in  preserving  competition  is  to 
lower  prices  or  to  prevent  the  enhancement  of  prices  either 
through  price  agreements  or  limitation  of  production.16  The 
severity  of  competition  for  business  forces  constant  efforts  to 
reduce  costs  by  the  employment  of  more  efficient  machinery, 
by  the  most  economic  use  of  labor,  by  the  development  of  office 
and  sales  methods,  by  careful  scrutiny  of  all  expenses  in  order 

i*  Wilder  Co.  vs  Corn  Products  Co.,  236  U.  S.  165,  174  (1915). 

is  United  States  vs  American  Can  Co.,  230  Fed.  859,  901   (1916). 

is  Standard  Oil  Co.  vs  United  States,  221  U.  S.  58  (1911);  United 
States  vs  International  Harvester  Co.,  214  Fed.  987,  1005;  United  States 
vs  U.  S.  Steel  Corp.,  223  Fed.  55,  61;  United  States  vs  Keystone  Watch 
Case  Co.,  218  Fed.  502  (1915). 


PURPOSE  OF  REGULATING  LAWS  27 

to  preserve  a  reasonable  margin  of  profit.  The  result  of  such 
efforts  in  the  absence  of  restrictive  agreements  is  the  mainten- 
ance of  a  lower  level  of  prices  than  would  obtain  under  a 
monopoly  whose  power  to  control  prices  would  almost  certainly 
be  exercised  to  exact  a  monopolistic  price. 

Protection  Against  Depreciation  of  Quality. — Similarly  the 
law  demands  the  maintenance  of  competition  free  from  all  un- 
due restraints  in  order  to  protect  the  public  from  deterioration 
of  quality  of  the  output  of  an  industry.17  The  tremendous  im- 
provements in  automobiles,  for  example,  has  taken  place  under 
the  stimulus  of  the  most  severe  kind  of  competition.  A 
monopoly,  on  the  other  hand,  in  control  of  the  market  would  not 
need  to  improve  the  quality  of  its  product  to  retain  its  market. 
The  public  would  have  to  be  satisfied  with  the  product  offered 
and  knowing  of  no  improvements  would  naturally  be  satisfied 
with  the  product  it  received.  It  is  no  doubt  true  also  that  under 
competition  the  varying  demands  of  different  sections  of  the 
public  for  varying  grades  or  quality  of  a  commodity  are  more 
closely  satisfied  than  they  would  be  under  a  monopolistic  system 
of  industry. 

Protection  Against  Depreciation  of  Service.— Again  the 
laws  are  based  upon  the  premise  that  competition  assures  better 
service  to  the  public.18  A  monopoly  can  arbitrarily  limit  or 
eliminate  the  many  forms  of  service  which  the  public  finds  so 
attractive  and  convenient ;  but  under  the  competitive  system  the 
action  of  some  competitors  in  offering  superior  services  to  the 
public  forces  their  competitors  in  turn  to  give  such  service.  So, 
too,  competition  assures  to  the  various  classes  of  buyers  the 
character  of  service  they  desire.  The  cash  buyer  desiring  no 
service  can  satisfy  his  needs  as  readily  as  the  buyer  requiring 
credits,  guarantees  and  what  not.  A  monopoly  in  the  absence  of 
an  effective  potential  competition  can  arbitrarily  deprive  the 
public  of  any  service  it  deems  inconvenient  to  give. 

Protection  Against  Monopoly  or  Socialism. — The  laws  regu- 


if  United  States  vs  International  Harvester  Co.,  214  Fed.  987,  1005; 
United  States  vs  U.  S.  Steel  Corp.,  223  Fed.  55,  61  (1915) ;  United  States 
vs  Keystone  Watch  Case  Co.,  218  Fed.  502,  518  (1915). 

is  United  States  vs  Union  Pacific  R.  R.  Co.,  226  U.  S.  61,  88  (1912), 


28  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

lating  competition  have  a  deep  political  significance.  To  quote 
the  Supreme  Court  of  the  United  States: 

"There  are  moreover  thought  to  be  other  dangers  to  the  moral 
sense  of  the  community  incident  to  such  great  aggregations  of  wealth 
which  though  indirect  are  even  more  insidious  in  their  influence  and 
such  as  have  awakened  feelings  of  hostility  which  have  not  failed  to 
find  expressions  in  legislative  acts."  19 

The  powerful  influence  of  great  monopolies  in  their  relationship 
to  our  government  could  easily  develop  a  situation  menacing  to 
the  preservation  of  the  rights  of  citizens  or  even  of  our  form  of 
government  itself.  The  ability  of  a  monopoly  to  avail  itself  of 
the  corporate  form  of  organization  with  its  guaranteed  per- 
petual existence  greatly  increases  the  dangers  of  monopoly.  A 
state  court  in  discussing  this  fact  has  used  this  significant  lan- 
guage: 

"All  experience  has  shown  that  large  accumulations  of  property  in 
hands  likely  to  keep  it  intact  for  a  long  period  are  dangerous  to  the 
public  weal.  Having  perpetual  succession,  any  kind  of  a  corporation 
has  peculiar  facilities  for  such  accumulations.  .  .  .  Freed  as  such 
bodies  are  from  the  sure  bound  to  the  schemes  of  individuals,  the 
grave,  they  are  able  to  add  field  to  field  and  power  to  power  until 
they  become  entirely  too  strong  for  that  society  which  is  made  up  of 
those  whose  plans  are  limited  by  a  single  life."  20 

Not  only  would  the  powerful  influence  of  monopolistic  com- 
binations on  the  processes  of  government  be  dangerous  to  so- 
ciety, the  reaction  of  the  people  against  such  a  situation  would 
also  hold  great  possibility  of  harm  to  the  industrial  and  politi- 
cal future  of  this  country.  The  tremendous  increase  in  Social- 
ism the  world  over,  the  growing  unrest  and  discontent  is  a  warn- 
ing to  the  business  man,  the  man  of  capital.  The  spread  of 
Socialistic  belief  is  amazing  and  has  encompassed  great  sections 
of  the  world.  From  time  immemorial,  as  was  adverted  to  by  the 
Supreme  Court  in  the  Pearsall  decision,  there  has  been  an  innate 

wPearsall  vs  Great  Northern  R.  R.  Co.,  161  U.  S.  646,  647. 
20  Central  R.  R.  Co.  vs  Collins,  40  Ga.  582;  People  vs  Chicago  Gas 
Trust  Co.,  130  111.  268. 


PURPOSE  OF  REGULATING  LAWS  29 

dislike  among  English-speaking  peoples  to  monopoly.  Couple 
with  this  instinctive  hostility  a  unification  of  industries  in  monop- 
olistic units,  and  you  have  a  situation  which  makes  the  transition 
to  Socialism  apparently  a  simple  matter  to  the  ordinary  mind. 
It  is  on  its  face  vastly  easier  for  the  state  to  take  over  the  opera- 
tion of  an  industry  centralized  and  monopolized  than  to  organ- 
ize and  operate  an  industry  of  many  competing  units.  The  pres- 
ent system  of  regulating  competition  is  designed  to  preserve  in- 
dustrial democracy.  The  monopolistic  system  of  industry  would 
he  the  inevitable  forerunner  of  Socialism.21  The  difficulties  in- 
herent in  the  regulation  of  monopoly  would  almost  inevitably 
lead  the  masses  of  the  people  to  believe  that  government  owner- 
ship giving  to  the  people  directly  or  indirectly  the  benefits  of 
all  profit  equally  would  be  simpler  than  regulation  preserving  to 
very  limited  private  classes  the  profits  of  industry.  The  certain 
way  to  bring  about  government  ownership  or  Socialism  in  this 
country,  with  the  power  residing  in  the  people  to  take  such  ac- 
tion if  aroused  to  the  belief  that  it  is  desirable,  is  to  repeal 
the  Anti-Trust  Acts  and  permit  monopolies  to  be  attained.  The 
present  policy  of  state  and  federal  government  regulating  com- 
petition is  designed,  on  the  other  hand,  to  maintain  ' '  an  equality 
of  fortune  among  its  citizens  thought  to  be  so  desirable  in  a 
Republic.  "22 

Dangers  of  Unregulated  Competition  to  the  Public. — If  on 
the  other  hand  effect  on  the  public  interests  involved  in  the 
removal  of  all  governmental  regulation  against  restraints  of 
competition  be  considered,  the  lack  of  wisdom  of  such  a  policy 
is  apparent.  It  is  of  importance  to  the  public  and  to  the  busi- 
ness man  that  those  conflicts  of  massed  units  in  industry  which 
work  harm  on  society  should  be  prevented.  The  judicial  his- 
tory of  the  Sherman  Law  clearly  shows  that  statute  to  be  a 
reasonably  effective  measure  in  preventing  and  breaking  up  such 
situations.  Were  producers  given  the  unlimited  rights  to  re- 
strain trade  and  achieve  monopoly  which  the  repeal  of  the  Anti- 
Trust  Acts  would  give  them,  the  effects  upon  society  in  in- 


21  See  address  Hon.  Joseph  E.  Davies,  Chairman,  Federal  Trade  Com- 
mission before  Associated  Advertising  Clubs  of  the  World,  June  20,  1915. 

22  State  vs  Standard  Oil  Co.,  49  Ohio  State  147. 


30  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

creased  prices  would  be  appalling  as  is  shown  by  the  history  of 
producers'  organizations,  which  have  acquired  a  complete 
monopoly  of  their  product.  Should  the  great  farmer  organiza- 
tions of  this  country  attempt  to  secure  a  monopoly  of  their  prod- 
uct such  as  wheat  or  cotton,  for  example,  the  effects  in  increased 
prices,  in  misery  to  the  lower  classes,  in  bitterness  between  the 
farmer  and  other  classes  of  society  could  scarcely  be  overesti- 
mated. Or  were  manufacturers  and  distributors  given  a  free- 
hand so  far  as  restraints  of  trade  are  concerned,  the  clashes 
between  the  great  branches  of  an  industry  striving  for  control 
of  price,  of  terms,  of  quality,  of  methods  of  distribution  bring- 
ing with  them  great  openly  organized  systematic  boycotts,  black 
lists  and  so  on,  would  until  one  or  the  other  faction  dominated 
the  situation,  cause  grave  artificial  dislocations  of  the  processes 
of  manufacture  and  distribution  and  work  the  gravest  hardship 
upon  the  public.  Or  were  labor  freed  from  all  regulations  as 
to  restraint  of  trade,  its  power  to  paralyze  industry  could 
scarcely  be  over  emphasized.  It  is  the  Anti-Trust  Acts  which 
have  repeatedly  prevented  nationwide  interference  with  inter- 
state commerce,  which  threatened  unparalleled  injury  to  the  eco- 
nomic life  of  the  nation.  These  are  not  imaginary  situations  but 
situations  which  have  been  prevented  or  corrected  by  the  Anti- 
Trust  statutes.  The  artificial  control  of  economic  forces  by 
great  organizations  in  an  industry,  the  conflicts  between  great 
units  of  industry,  cannot  be  permitted  without  immeasurable 
harm  to  society. 

Wastes  of  Competition.— But  the  most  ardent  believer  in 
the  competitive  system  on  the  other  hand  must  admit  that  there 
are  numerous  wastes  of  varying  importance  resulting  from  com- 
petition. There  is  unnecessary  plant  duplication  resulting  in 
many  industries  in  a  producing  capacity  in  excess  of  demand 
with  a  consequent  waste  of  capital  and  a  tendency  because  of 
increased  overhead  to  prevent  the  competitive  price  from  reach- 
ing the  low  level  it  otherwise  would.  There  is  a  lack  of  knowl- 
edge of  the  basic  facts  of  every  industry  compelling  unintelli- 
gent and  often  ruinous  competition  which  may  result  in  an  in- 
stability in  production,  in  unsteady  employment  of  labor  and  in 
violent  price  fluctuations  in  reality  against  the  best  interest  of 
the  public.  There  are  beyond  doubt  uneconomic  processes  of 


PURPOSE  OF  REGULATING  LAWS  31 

manufacture  being  utilized  and  unintelligent  policies  being  fol- 
lowed and  working  harm  to  the  industry  because  of  a  total  lack  of 
knowledge  of  costs.  Small  manufacturers  often  turn  out  a  line  of 
goods  when  a  cost  analysis  would  demonstrate  that  a  specializa- 
tion of  their  business  would  be  more  practical.  There  is  often  a 
freezing  of  capital  through  the  absence  of  fixed  standards  in 
the  industry,  not  only  tying  up  capital  in  the  manufacturer's 
warehouse  and  on  the  shelves  of  his  distributors,  but  also  con- 
fusing the  buyer  and  sometimes  operating  to  his  injury.  There 
is  sometimes  an  incomplete  development  of  the  uses  of  products 
and  a  failure  to  utilize  the  by-products  of  an  industry.  The 
presence  of  a  number  of  competitive  units  no  doubt  may 
tend  to  prevent  the  centralization  of  patents  in  such  a  way 
as  to  secure  the  uniform  production  of  the  best  product  by  the 
most  efficient  methods.  There  is  beyond  question  a  great  dupli- 
cation of  selling  expense  due  to  the  duplication  of  advertising 
and  selling  efforts.  There  may  be  an  inflation  of  credit 
due  to  intensive  competition.  There  are  also  innumerable  in- 
stances of  gross  frauds  involved  in  competitive  distribution. 
Our  competitive  system  prior  to  the  passage  of  the  Webb  Act 
may  also  have  weakened  American  industry  in  foreign  competi- 
tion. These  uncertainties  and  wastes,  increasing  the  risks  of 
business  enterprises,  it  has  also  been  contended,  tend  to  keep 
much  working  capital  from  entering  freely  into  ordinary  indus- 
trial concerns,  thus  not  only  depriving  the  public  of  a  steady 
market  for  the  investment  of  its  capital  but  also  retarding  the 
development  of  industry.23 

But  these  evils  in  the  main  are  not  incapable  of  solution. 
Most  of  them  can  be  greatly  mitigated  by  proper  lawful  co- 
operation between  members  of  an  industry.  It  is  the  purpose 
of  this  treatise  first  to  explain  in  as  plain  language  as  possible 
the  legal  rules  governing  competition  and  the  many  forms  of 
concerted  actions  tabooed  by  the  law  as  contrary  to  public 
policy,  and  secondly,  to  outline  to  business  men  the  varied  ac- 

23  For  complete  discussions  of  the  defects  of  the  competitive  system, 
see  JENKS  AND  CLARK,  "The  Trust  Problem,"  Doubleday,  Page  and  Com- 
pany; CLAEK,  "The  Control  of  Trusts,"  Macmillan  &  Co.;  CROWELL,  "Trusts 
and  Competition,"  McClure  &  Co.;  ELY,  "Monopolies  and  Trusts,"  Mac- 
millan &  Co. 


32  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tivities  in  which,  cooperating  through  their  trade  associations 
in  complete  compliance  with  the  law,  they  can  greatly  lessen  the 
economic  wastes  of  competition,  yet  preserve  for  themselves  and 
for  the  public  the  great  benefits  of  competition  as  a  regulating 
force  in  American  industry. 


CHAPTER  III 
FRAMING  THE  RULES  OF  BUSINESS  CONDUCT 

THE  President  of  the  United  States  in  a  recent  address  be- 
fore the  greatest  of  all  American  business  organizations  used 
this  forceful  language : — 

"If  I  were  to  bring  one  admonition  to  you,  I  would  like  to  charge 
you  men  and  women  of  influence  and  responsibility  with  the  task  of 
eliminating  from  American  commerce  those  who  do  not  have  con- 
science, whose  conscienceless  practices  bring  that  criticism  which  some- 
times attends  our  American  activities."  l 

The  codification  by  the  responsible  business  men  of  an  industry 
of  dishonest  practices  to  be  tabooed,  if  supported  by  the  govern- 
ment, can  be  a  powerful  factor  in  ridding  industry  of  such  un- 
healthy conditions. 

The  ideals  of  men  best  project  themselves  into  reality  when, 
crystallized  in  written  documents.  The  barons  of  England  when 
they  forced  a  reluctant  King  to  sign  the  great  document  known 
as  the  Magna  Charta  created  a  code  of  basic  principles  in  gov- 
ernment on  which  have  developed  the  two  greatest  world  powers 
of  to-day.  These  principles  restated  and  amplified  in  our  Con- 
stitution dominate  and  control  our  whole  system  of  govern- 
ment. The  Bible  is  the  great  code  of  moral  conduct  for  all 
Christian  races.  In  every  line  of  human  activity,  a  united  S 
written  expression  of  that  which  is  best  for  the  common  good 
becomes  a  strong  force  for  progress.  The  mere  expression  clari- 
fies the  general  sentiment.  The  expressed  judgment  of  men 
whom  he  respects  powerfully  influences  the  opinion  and  action 
of  the  individual. 

Nowhere  is  a  formulation  of  principles  more  needed  than 
in  business.  Business  represents  perhaps  the  greatest  field  of 

i  Address  of  Warren  G.  Harding,  President  of  the  United  States,  be- 
fore the  Chamber  of  Commerce  of  the  United  States,  May  18,  1922. 

33 


34  TRADE  ASSOCIATION  ACTIVITIES  AJSD  Tti£J  LAW 

human  activity.  The  law,  always  tardy  in  its  expression  of 
public  sentiment,  lags  behind  the  ideas  and  ideals  of  the  leaders 
of  business.  The  business  man's  fear  of  the  inflexibility  and 
arbitrary  administration  of  legislation  makes  him  prone  to  avoid 
legal  enactment  as  a  means  of  correcting  existing  trade  evils.  A 
desire  for  complete  freedom  of  action  on  the  part  of  a  few 
often  prevents  relief  by  action  of  an  industry  itself.  As  a  re- 
sult, more  than  one  American  industry  is  in  a  chaotic  condition, 
— dominated  as  to  some  of  its  methods  by  an  unscrupulous 
minority. 

The  overwhelming  bulk  of  business  men,  like  the  great  ma- 
jority of  men  everywhere,  are  honest  and  public  spirited.  But 
human  nature  is  human  nature  everywhere.  In  most  industries 
there  is  a  substrata  of  concerns  which  live  by  dishonest  and  un- 
fair methods.  They  adulterate  and  misbrand  their  products, 
deceiving  the  public  and  retarding  the  demand  of  the  public 
for  the  honest  goods  of  their  competitors.  They  advertise  their 
products  falsely,  destroying  the  confidence  of  the  public  in 
all  advertising.  They  employ  bribery  and  other  crooked  means 
of  making  their  sales,  sometimes  driving  out  of  business  com- 
petitors who  will  not  follow  their  leadership.  They  shade 
grades,  give  secret  rebates  to  favorite  customers  and  in  other 
ways  undermine  the  integrity  and  stability  of  an  industry. 
The  force  of  such  competition  often  compels  the  use  by  all  of 
methods  repugnant  to  the  sensibilities  of  all  right  thinking 
business  men  and  creates  profound  distrust  between  various 
branches  of  the  industry.  Although  they  represent  but  a  small 
part  of  an  industry  the  vicious,  crooked  competition  of  such  con- 
cerns can  have  a  most  harmful  effect  upon  an  entire  industry. 
The  trade  association  offers  the  agency  through  which  the  for- 
ward-looking leaders  of  business  can  crystallize  the  conscience 
of  their  industry.  Through  the  association  united  effort  is  pos- 
sible to  rid  an  industry  of  such  practices. 

The  Statement  of  Principles. — The  most  common  method  has 
been  the  formulation  of  basic  principles  of  business  conduct  by 
the  association  usually  as  a  ''code  of  ethics"  or  "code  of  fair 
practices."  Such  a  code  expresses  the  united  judgment  of  the 
industry  as  to  what  is  the  fair,  honorable  way  of  doing  busi- 
ness. One  of  the  finest  examples  of  such  a  code  is  the  follow- 


RULES  OF  BUSINESS  CONDUCT  35 

ing  Fair  Practices  Code  adopted  by  the  Association  of  Ice  Cream 
Supply  Men  in  1920,  an  infraction  of  which  results  in  expulsion. 


SECTION  I 
UNFAIR  PRACTICES  OF  SELLER  AS  AGAINST  BUYER 

1.  Misbranding  of  articles  as  regards  the  materials  or  ingredients  of 
which  they  are  composed,  their  quality,  their  method  or  place  of  manu- 
facture or  origin:    "inferential"  misbranding,  i.e.,   using  trade   names  or 
descriptive  terms  which  simulate  trade  names  or  descriptive  terms  of  un- 
adulterated or  genuine  goods. 

2.  Bribery  of  buyers  or  other  employees  of  customers,  with  the  pay- 
ment of  specified  perecentages  of  the  purchase  price  of  all  goods  bought, 
with  money,  presents,  excessive  treats,  etc.,  to  obtain  new  business  or  to 
induce  the  continuance  of  patronage. 

3.  Commercial  bribery  of  customers  by  money,  long  term  credits  not 
in  keeping  with  trade  custom,  excessive  entertaining  or  any  other  means. 
__-£.    False  or  misleading  advertising  concerning  prices,  advertiser's  status 
as  a  manufacturer,  methods  employed  in  the  advertiser's  business,  false 
claims   to   Government   or    other    endorsements,   etc.,   or    any   advertising, 
printed,  written  or  oral  that  comes  within  the  definition  of  "undesirable 
advertising"  laid  down  by  the  National  Association  of  Ice  Cream  Manu- 
facturers. 

5.  Trade  boycotts  or  combinations  of  traders  to  prevent  buyers  from 
obtaining  goods  through  customary  channels. 

6.  Sale  of  rebuilt  articles  as  new  products. 

?-    "Leader"  selling — i.e.,  selling  one  piece  of  goods  at  less  than  cost 

recouping  on  others  sold  at  the  same  time. 

8.    Making  up  and  disseminating  false  cost  sheets. 

{jr  9.  "Lottery"  premiums — i.e.,  giving  or  offering  premiums  of  unequal 
lvalue,  the  receipt  of  any  particular  premium  to  be  determined  by  lot  or 
r  chance. 

10.  Discrimination  in  prices  between  different  purchasers  or  different 
localities,  based  upon  other  than  legitimate  cost,  sales  and  delivery  con- 
siderations. 

11.  Selling  food,  or  a  product  to  be  put  into  food,  which,  because  of 
its  nature  or  method  of  manufacture,  or  for  any  other  reason,  violates  a 
local,  state  or  federal  ordinance  or  law. 

12.  Consigning  unordered  goods  to  a  possible  buyer,  with  the  hope  that 
they  will  be  used  and  paid  for. 

13.  Distribution  of  samples  of  a  better  grade  than  the  product  they  are 
supposed  to  represent. 

14.  Any  wilful  misrepresentation  as  to  market  conditions  or  supply, 
either  as  to  finished  products  or  raw  materials,  tending  to  induce  buyers 


36  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

to  overbuy  their  requirements  or  contract  for  future  deliveries  to  their 
plain  loss  or  disadvantage. 


SECTION  II 
UNFAIR  PRACTICES  OF  COMPETITOR  AS  AGAINST  COMPETITOR 

1.  Bribery  of  customer's   employees  to   introduce   foreign   substances 
into  a  competitor's  goods  already  purchased. 

2.  Tampering  with  or  misad justing  goods  sold  by  a  competitor,  for 
the  purpose  of  discrediting  him  with  a  customer. 

3.  Bribery  of  competitor's  employees  or  spying  on  competitor's  plant, 
trailing  of  competitor's  delivery  and   sales   agents,   bribing  railroad   em- 
ployees for  information  about  competitor's  shipments,  stealing  or  copying 
competitor's  blue-prints,  or  any  other  means  to  the  end  of  procuring  a 
competitor's  business  or  trade  secrets. 

4.  Procuring  breach,   withdrawal   or  delay  of  competitor's   contracts 
with  customers  by  misrepresentation  or  by  any  other  means. 

5.  Inducing  competitor's  employees  to  leave  in  such  numbers  as  to  dis- 
organize, hamper  or  embarrass  a  business. 

6.  Making  false   or   disparaging   statements,    either  written   or   oral, 
respecting  a  competitor's  products,   selling  prices,  business,   financial   or 
personal  standing,  etc. 

7.  Threats    of    suits    of    patent    infringement    for    selling    or    using 
alleged  infringing  products  of  a  competitor,  unless  such  threats  are  made 
in  good  faith. 

8.  Threatening  to  sue  a  competitor  for  the  purpose  of  intimidation. 

9.  False  claims  to  patents  or  misrepresentation  of  the  scope  of  patents. 

10.  Simulating   in  one's   own   product   the   trade   mark,  trade   name, 
cartons,  slogans,  advertising  matter,  or  appearance  of  a  competitor's  prod- 
uct. 

11.  Converting  raw  materials  of  competitors  to  one's  own  use  by  di- 
verting shipments  through  bribery,  trickery  or  misrepresentation. 

12.  Depriving  a  competitor  of  transportation  facilities  through  brib- 
ery of  railroad  employees,  trickery,   exercise  of  undue  influence  or  any 
other  means. 

13.  Refusal  to  accept  advertising  upon  other  than  ethical  grounds. 

14.  Threats  to  withdraw  advertising  unless  competitor's  advertising 
is  excluded  or  unless  certain  discriminatory  favors  are  granted. 

15.  Claiming  or   exercising  a  monopoly. 

16.  Obtaining  estimates  from  competitors  through  bogus  requests  by 
a  third  party. 

17.  Threats  to  withdraw  patronage  from  a  firm  supplying  raw  ma- 
terials if  same  raw  materials  are  sold  to  competitors. 

18.  Bidding  prices  of  raw  materials  to  a  point  where  business  be- 
JL, ponies  unprofitable,  for  the  purpose  of  driving  out  weaker  competitors. 


X 


RVLE8  OF  BUSINESS  CONDUCT  87 

19.  Purchasing   a   competitor's    unused   goods,    already   sold,    from   a 
customer,  and  substituting  one's  own  goods. 

20.  Threatening  to  force  a  competitor  out  of  business  unless  he  keeps 
out  of  certain  territories. 

/  2,1.    Selling  or  offering  to  sell  below  cost  or  at  less  than  a  fair  profit 
/     to  force  a  competitor  out  of  the  field. 

22.  Making  up  and  disseminating  false  cost  sheets. 

23.  Payment  of  bonuses  to  jobbers'   salesmen,   with   or  without   the 
knowledge  of  employers,  for  pushing  of  certain  goods  as  against  competi- 
tors' goods. 

24.  Giving  away  of  goods,  other  than  customary  samples,  in  large 
quantities  to  hamper  and  embarrass  competitors. 

25.  Combinations  of  competitors  to  raise  or  maintain  or  bring  about 
uniformity  in  prices,  to  divide  territory  or  allot  customers. 

26.  Offering  goods  through  second  hands  for  less  than  their  direct 
sales  price.2 

This  movement  for  a  codification  of  business  principles  has  gone 
far  beyond  the  bounds  of  single  industries.  In  January,  1922, 
the  Commercial  Standards  Council  was  formed,  its  members 
for  the  most  part  being  officers  of  national  business  organiza- 
tions.3 The  purpose  of  the  Council  is  to  crystallize  business 
sentiment  and  stimulate  efforts  to  eliminate  questionable  prac- 
tices from  American  industry.  An  anti-bribery  campaign  is 
first  being  organized.  The  National  Association  of  Credit  Men 
whose  members  represent  all  branches  of  industry  have  adopted 
"  Canons  of  Commercial  Ethics "  dealing  with  such  matters  as 

2  Other  associations  representing  different  branches  of  various  indus- 
tries have  adopted  similar  codes.  Among  the  many  may  be  mentioned  the 
following:   National  Commercial  Fixtures  Mfrs'.  Assn.,  National  Assn.  of 
Building  Exchanges,  Associated  General   Contractors  of  America,  United 
Typothetse  of   America,    Adopted   5th   Annual   Convention,    1891,   and   re- 
affirmed annually;   National  Hardware  Assn.,  National  Retail  Monument 
Dealers'  Assn.,  National  Assn.  of  Ice  Cream  Manufacturers,  National  Assn. 
of  Credit  Men,  National  Assn.  of  Electrical  Contractors  and  Dealers,  and 
the  Central  Bureau  of  Dining  Table  Manufacturers.     The  Building  Con- 
gress  following  the  expose  of  conditions  in  the  building  trades   in   New 
York,  in  December  of  last  year,  adopted  a  code  setting  forth  in  detail  the 
judgment  of  the  industry  as  to  the  duties  of  owners,  bankers,  real  estate 
brokers,  architects,  engineers,  contractors,  material  dealers  and  laborers  in 
their  several  relationships.     Official  Bulletin,  Heating  &  Piping  Contrac- 
tors' National  Assn.,  Jan.,  1922,  p.  31. 

3  Annals  of  the  American  Academy,  May,  1922,  p.  221. 


38  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

respect  for  contract  obligations,  honest  advertising,  the  taking 
of  unearned  discounts,  relations  with  professional  men  and  so 
on.4  The  International  Association  of  Rotary  Clubs  is  conduct- 
ing an  international  campaign  for  the  writing  of  codes  of  busi- 
ness practice  in  all  branches  of  business.5  This  campaign  has 
aroused  deep  interest  in  a  number  of  industries.  One  of  the 
first  efforts  of  the  American  Construction  Council,  in  the  or- 
ganization of  which  over  two  hundred  associations  are  expected 
to  participate,  will  be  the  formation  of  a  code  of  ethics  accept- 
able to  the  industry  and  to  the  public.  This  great  organization 
will  endeavor  to  coordinate  the  efforts  of  the  various  construc- 
tion industries,  of  the  professional  and  labor  organizations  in 
these  industries,  and  of  the  many  groups  whose  products  enter 
into  construction.  A  statement  of  principles  by  so  representa- 
tive a  group  in  so  basic  an  industry  ought  to  have  a  far-reach- 
ing effect  throughout  American  commerce. 

The  International  Chamber  of  Commerce  in  its  convention 
in  Paris  in  1920  adopted  a  resolution  urging  the  creation  of  a 
Bureau  by  each  National  organization  to  study  questions  re- 
lating to  unfair  competition  and  to  prepare  reports  for  the 
benefit  of  the  Chamber.  The  Second  Pan  American  Congress 
in  1920  adopted  a  resolution  making  a  study  of  unfair  methods 
of  competition  in  international  trade  a  part  of  its  program  of 
work.6  Would  not  the  formulation  of  what  might  be  called  a 
constitution  of  business  by  the  Chamber  of  Commerce  of  the 
United  States  or  some  similiar  organization  supplemented  and 

*J.  H.  Tregoe,  Secretary,  Annals  of  American  Academy,  May,  1922, 
p.  208. 

»  Guy  Gundaker,  Chairman,  Committee  on  Business  Methods :  Annals 
of  American  Academy,  May,  1922,  p.  228. 

«New  Phases  of  Unfair  Competition  and  Measures  for  its  Suppres- 
sion, William  Notz,  Yale  Law  Journal,  Feb.,  1921,  p.  384.  The  Inter- 
national Union  for  the  Protection  of  Industrial  Property  with  a  member- 
ship embracing  22  countries  in  its  meeting  at  Washington  in  1911  adopted 
a  provision  whereby  all  the  contracting  countries  agreed  to  assure  to  the 
members  of  the  Union  an  effective  protection  against  unfair  competition. 
This  obligation  has  on  several  occasions  been  recognized  by  the  French 
and  German  courts.  International  Private  Agreements  in  the  Form  of 
Cartels,  Syndicates  and  Other  Combinations,  William  Notz,  Journal  of 
Political  Economy,  October,  1920,  p.  678. 


RULES  OF  BUSINESS  CONDUCT  39 

fortified  by  the  codes  of  our  various  industries  particularly  ap- 
plicable to  their  conditions  be  a  tremendous  force  working  for 
better  conditions  in  American  industry  generally? 

There  can  be  no  doubt  that  the  various  codes  of  business 
principles  adopted  by  many  associations  have  had  a  great  in- 
fluence in  improving  business  methods  in  this  country.  They 
have  given  the  business  man  something  definite  on  which  to  base 
the  conduct  of  his  enterprise.  They  represent  one  of  the  great 
achievements  of  the  trade  association  movement.  What  could 
be  finer  than  the  action  of  the  wholesale  grocers'  association 
vigorously  opposing  the  cancellation  by  its  members  of  con- 
tract obligations  covering  the  purchase  of  sugar  during  the 
great  break  in  the  market  when  generally  over  the  country  there 
was  an  epidemic  of  cancellations.7 

Lack  of  Control. — The  weakness  of  any  such  codification,  / 
however,  lies  in  the  lack  of  means  of  enforcement.  The  power 
to  control  its  membership  gives  an  association  a  certain  control 
over  its  own  members.  The  Varnish  Manufacturers  expel  mem- 
bers who  violate  the  anti-rebate  agreement  entered  into  by  every 
member  as  a  condition  of  membership.8  The  American  Whole- 
sale Lumber  Association  which  has  adopted  a  rigorous  code  of 
ethics  also  demands  a  compliance  with  its  provisions  as  a  condi- 
tion of  membership.9  But  such  measures  control  the  members 
only  and  usually  the  offenders  are  not  members  of  the  associa- 
tion. An  association  can  sometimes  also  use  effective  persuasive 
methods  against  the  use  of  unfair  methods  by  customers  of 
its  members,  or  by  concerns  from  which  they  secure  their  sup- 
plies, but  usually,  to  reach  non-members,  more  harsh  measures 
are  necessary.  The  stationers  have  secured  the  elimination  by 
manufacturers  of  some  selling  methods  generally  recognized  to 
be  unfair  and  unlawful.10 

7  See  Bulletin  National  Wholesale  Grocers'  Assn.,  Sept.,  1920, 
p.  2. 

s  Address,  M.  Q.  Macdonald,  Manager,  Unfair  Competition  Bureau, 
Varnish  Manufacturers'  Assn.,  before  the  Paint  Manufacturers'  Assn.  of 
the  United  States,  Nov.  19,  1920,  p.  11. 

9  By-laws    American    Wholesale    Lumber    Assn.,    Art.    XI,    Art.    Ill, 
Sec.  9. 

10  Year  Book,  National  Assn.  of  Stationers  and  Manufacturers,  1915, 
p.  7. 


40  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Federal  Trade  Commission. — To  compel  the  elimination  of 
the  use  of  unfair  methods  by  non-members  as  well  as  by  mem- 
bers any  association  can  now  have  the  benefit  of  the  cooperation 
of  a  governmental  agency.  A  number  of  associations  have 
quickly  seized  this  opportunity.  The  Federal  Trade  Commis- 
sion has,  as  already  described  in  this  volume,  the  power  to  pre- 
vent the  use  of  unfair  methods  of  competition.11  An  associa- 
tion, by  filing  a  written  complaint  with  the  Commission  can  se- 
cure an  investigation  of  any  alleged  unfair  practice  and  if  in 
the  judgment  of  the  Commission  after  full  hearing  such  practice 
is  an  unfair  method  of  competition,  the  offenders  will  be  or- 
dered to  discontinue  its  use.  In  the  textile  industries  several 
years  ago  deceptive  branding  of  fabrics  became  so  general  that 
a  number  of  associations  determined  to  seek  the  cooperation  of 
the  government  in  correcting  this  evil.  The  Silk  Association  of 
America,  with  the  cooperation  of  other  associations,  filed  com- 
plaint with  the  Commission.  An  investigation  was  made  and 
as  a  result  a  number  of  complaints  were  issued  and  orders  is- 
sued against  concerns  which  had  been  misbranding  their  prod- 
ucts.12 The  paint  and  varnish  industries  by  reason  of  uncon- 
trollable conditions  were  faced  with  a  situation  where  the  brib- 
ery of  purchasing  agents,  foremen  and  others  having  to  do  with 
purchases  came  near  to  being  a  prerequisite  to  the  sale  of  their 
goods.  Resolved  to  correct  conditions  which  were  repugnant  to 
men  in  the  two  industries,  they  formed  an  unfair  competition 
bureau  which  has  cooperated  vigorously  with  the  Federal  Trade 
Commission  and  other  legal  authorities  in  an  effort  to  suppress 
the  practice.  This  bureau  has  gathered  proof  of  the  use  of  this 
practice  by  individual  concerns  for  submittal  to  the  Commis- 
sion, has  organized  support  for  the  enactment  of  more  effective 
legislation  and  has  combatted  the  practice  in  every  way  pos- 
sible. The  shipping  interests  have  formed  an  organization 
known  as  the  American  Ship  Service  Corporation  which  is  also 
cooperating  with  the  Commission  in  an  effort  to  eliminate  the 

11  See  Chap.  I,  p.  14  ff. 

12  Address :  Pure  Fabrics  Legislation,  Horace  B.  Cheney.     Proceedings, 
National  Wholesale  Dry  Goods  Assn.,   1916,  p.  25;    Report  of  Committee 
on   National   Legislation,  National   Assn.   of   Cotton  Manufacturers,   Pro- 
ceedings, 1916,  p.  407. 


RULES  OF  BUSINESS  CONDUCT  41 

custom  of  giving  secret  commission  to  captains,  stewards,  and 
others  in  connection  with  the  sale  of  ship  supplies.13  The  ac- 
tivity of  these  associations  in  cleaning  up  conditions  in  their 
industry  with  the  cooperation  of  the  government  is  one  of  the 
brightest  spots  in  trade  association  history.14  The  wholesale 
grocers  maintain  a  standing  committee  for  cooperation  with  the 
Federal  Trade  Commission  in  the  elimination  of  practices  un- 
fair to  the  wholesale  grocers.15 

Trade  Practice  Submittal. — To  furnish  a  more  effective 
method  of  cooperation  with  American  industries,  the  Com- 
mission has  recently  adopted  a  new  procedure  known  as  the 
trade  practice  submittal.  The  purpose  of  this  procedure  is  to 
eliminate  simultaneously  and  by  the  consent  of  those  engaged 
in  the  industry,  practices  which  in  the  opinion  of  the  industry 
as  a  whole  are  unfair.  The  Commission  either  on  its  own  initia- 
tive or  at  the  request  of  the  industry  calls  a  conference  of  the 
entire  industry.  The  representatives  of  the  industry  draw  up  a 
list  of  the  practices  which  they  believe  to  be  unfair.  In  some 
instances,  questionnaires  are  sent  to  all  the  concerns  in  the 
trade  to  get  a  fuller  expression  of  opinion.  An  earnest  effort  is 
made  to  secure  a  comprehensive  composite  judgment  of  all  fac- 
tors in  the  industry.  These  conclusions,  the  Commission  takes 
for  their  informative  value  but  does  not  of  course  regard  itself 
as  necessarily  bound  by  them.  The  Commission  of  course  could 
not  in  the  slightest  degree  bind  itself  to  accept  without  quali- 
fication the  opinions  of  the  industry  for  the  business  man's 
idea  of  what  is  unfair  competition  sometimes  differs  radically 
from  that  of  courts  and  commissions.  But  a  united  expression 
of  judgment  by  an  entire  industry  cannot  fail  to  have  great 
weight  with  the  Commission.  If  the  facts  presented  lead  the 
Commission  to  believe  the  elimination  of  such  practices  is  in 

is  Traffic  World,  Jan.  8,  1921,  p.  78. 

i4Keport  of  M.  Q.  Macdonald,  Manager  of  the  Unfair  Competition 
Bureau,  at  the  annual  meeting  of  the  National  Varnish  Mfrs'.  Assn.,  Nov. 
16,  1920,  and  of  the  Paint  Mfrs'.  Assn.  of  the  United  States,  Nov.  19,  1920, 
gives  an  idea  of  the  wholehearted  way  these  associations  have  handled  this 
problem. 

is  Proceedings,  Eleventh  Annual  Meeting  National  Wholesale  Grocers' 
Assn.,  p.  218.  The  American  Assn.  of  Woolen  &  Worsted  Mfrs.  also  has 
a  committee  on  unfair  practices.  Textile  World,  March  5,  1921,  p.  92. 


42  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  public  interests  it  issues  a  complaint  against  any  concern 
which  it  has  reason  to  believe  from  facts  shown  is  using  any 
of  such  practices.16  Having  behind  it  the  support  of  the  in- 
dustry, the  Commission  is  greatly  strengthened  in  the  event  of 
any  appeal  to  the  courts  from  the  order  of  the  Commission. 
This  new  method  of  cooperation  between  industry  and  govern- 
ment in  ridding  industries  of  objectionable  practices  is  the  most 
constructive  step  yet  taken  in  the  regulation  of  business.  When 
an  agency  is  provided  for  group  cooperation  between  the  best- 
thinking  and  broad- visioned  business  men  of  an  industry  and 
the  government  real  results  should  be  attained.  Unfortunately 
the  existence  of  this  method  of  procedure  is  not  widely  known. 
Trade  practice  submittals  have,  however,  been  employed  in  the 
butter,  rebuilt  typewriter,  celluloid,  petroleum,  macaroni,  book 
and  writing  paper,  and  condensed  and  evaporated  milk  indus- 
tries. In  some  instances,  very  substantial  results  of  lasting 
benefit  have  been  secured.17  This  method  of  procedure  fur- 
nishes an  unusual  opportunity  for  every  industry  to  rid  itself 
of  these  unfair  and  illegal  practices  which  injure  the  reputation 
of  its  products  and  lower  the  morale  of  an  industry.  The  real 
business  men  are  given  an  opportunity  to  put  their  ideals  of 
business  practice  in  practical  effect  with  the  powerful  support 
of  the  government. 

Legality. — Unfortunately  the  idea  of  the  codification  of  fair 

16  Annual  Report,  Federal  Trade  Commission,  1920,  pp.  43,  46. 

n  Annual  Report,  Federal  Trade  Commission,  1920,  p.  44;  Annual 
Report,  Federal  Trade  Commission,  1921,  p.  32.  Typical  of  these  various 
conferences  was  that  held  with  the  Independent  Oil  Men's  Association  and 
the  American  Independent  Petroleum  Institute  at  which  meeting  the  use 
of  the  following  practices  were  condemned. 

( 1 )  False  representation  as  to  the  actual  value  of  a  competitor's  prod- 
ucts; (2)  attacking  a  competitor  as  to  his  financial  standing,  personal  in- 
tegrity, or  ability  to  serve  the  trade;  (3)  condemning  a  competitor  be- 
cause of  the  size  of  his  business,  either  large  or  small;  (4)  advertising  so 
as  to  imply  that  competitors  are  not  selling  good  products;  (5)  misrepre- 
senting or  misbranding  of  any  petroleum  products ;  ( 6 )  all  forms  of  secret 
rebates  or  settlements  whereby  books  and  accounts  can  be  so  manipulated 
as  to  cover  up  the  actual  conditions ;  ( 7 )  commercial  bribery ;  ( 8 )  making 
of  contracts  with  ultimate  consumers  or  users  of  oils,  gas,  etc.,  at  a  fixed 
price  guaranteeing  against  an  advance  and  protecting  against  a  decline; 
(9)  tank-wagon  or  service  station  sales  on  a  credit  basis. 


RULES  OF  BUSINESS  CONDUCT  43 

and  unfair  business  practices  which  has  in  it  so  much  of  pos- 
sible benefit  to  an  industry,  has  repeatedly  been  grossly  abused. 
So-called  codes  of  ethics  have  often  been  used  to  restrict  com- 
petition and  to  control  the  channels  of  distribution.  Any  such 
use  is  of  course  a  violation  of  law.18  The  most  common  viola- 
tion has  been  in  the  adoption  of  rules  designed  to  prevent  di- 
rect or  so-called  irregular  selling.  An  association  code  contain- 
ing rules  designed  to  restrict  competition  unreasonably  amounts 
to  an  agreement  or  conspiracy  in  restraint  of  trade.  No  code 
should  deal  with  any  of  the  prohibited  forms  of  associated  ac- 
tivities discussed  hereafter.  In  view  of  the  fact  that  the  busi- 
ness man  sometimes  feels  that  some  severe  but  lawful  form  of 
competition  is  unfair,  no  code  of  business  practice  should  be 
formulated  without  the  advice  of  a  lawyer  skilled  in  the  inter- 
pretation of  the  anti-trust  laws. 

There  can  be  no  doubt  that  the  definite  codification  of 
business  ideals  of  an  industry  has  the  most  far-reaching  effects. 
The  approval  of  methods  which  are  fair,  the  condemnation  of 
practices  which  are  unfair  tends  to  stabilize  business  methods 
and  to  eliminate  practices  which  destroy  the  morale  of  an  in- 
dustry. Such  action  tends  to  quickly  establish  trade  customs 
instead  of  leaving  their  formation  to  the  slow  processes  of  evolu- 
tion from  countless  business  transactions.  The  cooperation  of 
the  government  gives  to  the  broad-visioned  leaders  of  an  indus- 
try effective  aid  in  establishing  the  clean,  fair,  commercial  con- 
ditions for  which  they  have  long  been  striving.  Surely  this  is 
a  field  of  cooperation  which  must  appeal  to  the  imagination  and 
spirit  of  every  progressive  industry. 

is  Letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover,  Sec- 
retary of  Commerce,  Feb.  8,  1922. 


CHAPTER  IV 
THE  DISSEMINATION  OF  BASIC  BUSINESS  FACTS 

THE  trade  association  is  to-day  the  greatest  single  private 
agency  engaged  in  gathering  and  broad-casting  facts  as  they 
affect  industry.  An  investigation  by  the  Federal  Trade  Com- 
mission shows  474  associations,  or  more  than  thirty  per  cent  of 
the  associations  reporting  to  the  Commission  to  be  compiling 
and  distributing  trade  statistics.1  Individual  efforts  to  secure 
comprehensive  facts  as  to  total  production  of  an  industry,  total 
sales,  and  price  trends  as  shown  by  the  consummated  sales  of 
many  sellers  are  futile.  Only  the  largest  companies  can  main- 
tain the  special  statistical  department  and  wide-spread  organi- 
zations which  give  them  a  reasonably  accurate  gauge  on  market 
conditions.  The  great  majority  of  concerns  are  compelled  to 
do  business  without  reliable  information  of  this  kind.  Only  or- 
ganized effort,  either  by  associations  or  by  the  government,  can 
secure  accurate,  comprehensive  information  from  the  original 
sources  upon  which  a  business  man  may  safely  rely. 

Every  business  man  rightly  wants  to  know  the  basic,  eco- 
nomic conditions  in  his  industry,  which  should  determine  his 
present  policy  and  inevitably  must  affect  his  future  business. 
While  the  powerful  political  influence  of  agricultural  interests 
has  resulted  in  the  creation  of  government  agencies  for  the  pub- 
lication of  trade  data  as  it  affects  the  farmer,  there  has  been 
an  almost  complete  lack  of  accurate,  comprehensive  statistics 
in  all  our  industries  until  the  past  few  years.  The  war  stimu- 
lated the  efforts  made  by  our  trade  associations  to  collect  and 
distribute  the  facts.  Recurrent  periods  of  overproduction  and 
underproduction,  with  their  resulting  violent  fluctuations  in 
price,  spotty  markets,  speculation  and  other  injuries  to  industry 
and  to  the  public  are,  to  a  considerable  extent,  due  to  the  blind 
conditions  under  which  business  men  have  been  compelled  to 

i  Letter,  P.  J.  Yoder,  Secretary,  Federal  Trade  Commission,  Jan.  23, 
1922. 

44 


DISSEMINATION  OF  BUSINESS  FACTS  45 

work  in  the  absence  of  some  agency  to  inform  them  as  to  the 
facts.  The  law  does  not  deprive  business  men  of  the  right  to 
vsecure  the  fullest  possible  data  from  every  source.  The  law 
demands  only  that  supply  and  demand  shall  not  be  subject  to 
any  artificial  restrictions  or  control.  Some  of  the  most  serious 
indictments  of  the  competitive  system  spring  from  the  fact  that 
buyer  and  seller  have  been  working  in  utter  ignorance  of  the 
true  conditions  of  supply  and  demand.  A  knowledge  by  all 
business  men  of  the  facts  relating  to  their  industry  works  for 
the  maintenance  and  strengthening  of  the  competitive  system  in 
industry.  There  has  been  a  great  need  for  years  for  fact-gath- 
ering agencies,  which  could  compile  four  groups  of  business 
facts.  First,  there  ought  to  be  published  periodically,  if  it  is 
possible  to  secure  reliable  data,  figures  showing  the  productive 
capacity  of  each  industry.  Second,  there  should  be  a  constant 
compilation  of  facts,  showing  current  conditions  of  supply  and 
demand.  Third,  there  should  be  a  means  provided  for  the  in- 
terchange of  facts,  regarding  prices,  costs,  wages,  waste,  inven- 
tories and  so  on.  Fourth,  the  facts  with  reference  to  the  basic 
factors  affecting  the  trend  of  the  American  industry  generally 
will  be  of  value.  Substituting  facts  for  rumors,  misrepresenta- 
tions and  even  fraud,  should  stabilize  and  strengthen  business. 
It  will  create  a  sound  economic  foundation  for  the  free,  unre- 
stricted operation  of  the  law  of  supply  and  demand  which 
the  laws  of  the  land  endeavor  to  secure. 

Value  of  Facts  on  Productive  Capacity. — An  accurate  and 
widespread  knowledge  as  to  the  productive  capacity  in  each  in- 
dustry is  desirable  from  every  standpoint.  It  would  tend  to 
prevent  excess  overproduction  and  the  investment  of  capital  in 
industries,  in  which  the  supply  has  already  outrun  demand.2 
Few  groups  of  business  men  will  invest  their  money  in  new 
plants  if  the  facts  clearly  show  the  physical  capacity  of  the 
industry  is  already  much  greater  than  the  demand.  Thus,  not 
only  will  the  industry  be  protected  from  the  evils  of  overproduc- 
tion, with  its  great  economic  loss  and  tendency  toward  monopoly, 
but  the  investing  public  will  also  have  reliable  facts,  which  will 

2  Will  H.  Parry,  Commissioner,  Federal  Trade  Commission,  Proceed- 
ings, First  Annual  Meeting,  Southern  Pine  Association,  p.  127, 


46  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tend  to  prevent  it  from  diverting  capital  into  non-productive 
fields.  Banks  would  likewise  have  facts  on  which  to  decide  upon 
limits  of  credit ;  and  both  risk  and  interest  rates  could  in  conse- 
quence be  reduced. 

Value  of  Facts  on  Supply  and  Demand. — Economists  have 
long  recognized  that  continuous  information  as  to  the  conditions 
of  supply  and  demand  is  necessary  to  the  orderly  conduct  of 
trade  and  the  protection  of  the  interests  of  the  public.  More 
than  a  decade  ago  Jevons,  in  his  Theory  of  Political  Economy 
stated  this  fact  in  these  words : — 

"It  is  of  the  very  essence  of  trade  to  have  wide  and  constant 
information.  A  market  then,  is  theoretically  perfect  only  when  all 
traders  have  perfect  knowledge  of  the  conditions  of  supply  and  de- 
mand, .  .  . 

"So  essential  is  a  knowledge  of  the  real  state  of  supply  and  de- 
mand to  the  smooth  procedure  of  trade  and  the  real  good  of  the  com- 
munity, that  I  conceive  it  would  be  quite  legitimate  to  compel  the 
publication  of  any  requisite  statistics.  Secrecy  can  only  conduce  to 
the  profit  of  speculators  who  gain  from  great  fluctuations  of  prices." 
Pp.  87-88. 

Because  of  the  lack  of  governmental  assistance,  or  the  inability 
themselves  to  cooperate  in  securing  the  facts,  business  men  of 
most  industries  have  been  compelled  to  grope,  by  means  of  their 
own  organizations,  special  investigators,  trade  journals,  and 
other  limited  agencies,  amidst  a  maze  of  inaccurate  and  some- 
times fraudulent  information,  in  an  effort  to  secure  an  approxi- 
mate knowledge  of  the  conditions  of  supply  and  demand.  In 
seasonal  industries,  where  the  raw  material  must  be  purchased 
and  the  commodity  sold  in  a  limited  period,  misrepresentation 
of  the  facts  is  particularly  rife.3  The  small  business  man  has 
been  especially  handicapped  because  his  facilities  for  securing 
information  are  very  limited.4  He  does  not  have  a  sales  force 
scattered  throughout  the  country  making  daily  reports  nor  can 
he  afford  to  maintain  a  statistical  organization  to  gather  facts 

a  A.  G.  Kahn,  Interstate  Cottonseed  Crushers'  Assn.,  Official  Sum- 
mary, Conference  of  Trade  Assn.  Representatives,  Washington,  D.  C.,  April 
12,  1922,  p.  39. 

*  Testimony  William  O.  Goodrich,  President,  William  O.  Goodrich  Co., 
Transcript,  United  States  V8  American  Unseed  Oil  Co.  et  al,  p.  295. 


DISSEMINATION  OF  BUSINESS  FACTS  47 

from  every  available  source.  There  is  no  conceivable  reason 
why  every  business  man  in  the  country  is  not  entitled  to  know 
the  facts  of  his  industry.  In  the  absence  of  governmental  ac- 
tion, there  is  no  reason  why  an  association  should  not  gather 
such  statistics  so  long  as  the  facts  are  not  misused  to  restrict 
competition.  A  number  of  associations  are  endeavoring  to  place 
the  industries  that  they  represent  on  a  sound  economic  basis, 
by  gathering  and  distributing  information  showing  current  pro- 
duction, stocks  on  hand,  current  shipments,  current  orders  and 
unfilled  orders.5  These  facts  when  secured  from  a  considerable 
portion  of  the  concerns  in  the  industry,  give  a  fairly  accurate 
picture  of  current  conditions  of  supply  and  demand  upon  which 
each  member  may  base  his  own  individual  business  policy.  Data 
of  this  character  is  invaluable. 

It  enables  the  business  man  to  make  an  exact  comparison  of 
his  business  with  general  conditions  in  the  industry.6  If  the 
total  production  of  his  industry  is  increasing  while  his  produc- 
tion is  standing  still,  he  has  notice  of  the  necessity  for  drastic 
action,  or  the  condition  of  his  unshipped  order  file  as  contrasted 
with  the  general  condition  in  the  industry,  may  afford  a  reliable 
warning.7  If  on  the  other  hand,  the  total  production  of  the  in- 

5  Among  the  associations  which  gather  statistics  of  this  character  are 
— The  Southern  Pine  Assn.,  Container  Club,  Prepared  Roofing  Assn.,  United 
States  Sugar  Mfrs'.  Assn.,  National  Assn.  of  Finishers  of  Cotton  Fabrics, 
Associated  Batting  Mfrs.,  West  Coast  Lumbermen's  Assn.,  Western  Pine 
Mfrs.'  Assn.,  California  Pine  Mfrs.'  Assn.,  California  Redwood  Assn.,  North 
Carolina  Pine  Assn.,  Northern  Hemlock  &  Hardwood  Mfrs.'  Assn.,  National 
Lumber  Mfrs.'  Assn.,  National  Paint  Oil  &  Varnish  Mfrs.'  Assn.,  Shellac 
Importers'  Assn.,  National  Implement  Mfrs.'  Assn.,  Tanners'  Council,  Knit 
Goods  Mfrs.'  of  America,  Newsprint  Mfrs.'  Assn. 

For  an  interesting  article  dealing  with  the  organization  and  methods 
of  associations  exchanging  such  information,  and  also  prices,  see  "Open 
Price  Associations,"  by  H.  R.  Tosdal,  American  Economic  Review,  June, 
1917,  p.  331. 

e  TIPPER:  "The  New  Business,"  p.  162;  E.  J.  Cornish,  Chairman  Statis- 
tical Committee,  National  Paint  Oil  &  Varnish  Assn.,  Official  Summary, 
Conference  of  Trade  Assn.  Representatives,  Washington,  D.  C.,  April  12, 
1922,  pp.  21-23;  F.  L.  Lamson,  Treasurer,  Norwalk  Tire  &  Rubber  Co., 
New  York  Evening  Post,  Oct.  22,  1921. 

7  A.  C.  Brown,  Secretary,  National  Alliance  Case  Goods  Mfrs.,  Annual 
Meeting,  1918,  p.  7. 


48  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

dustry  is  falling  off,  because  of  irresistible  economic  conditions, 
he  may  properly  be  more  conservative  in  his  price  policy.  In 
such  a  situation  he  is  protected  also  against  his  own  salesmen, 
who  in  reporting  their  inability  to  get  the  business  are  confi- 
dent competitors  are  getting  it  at  lower  prices.8  Figures  show- 
ing a  general  decline  in  production  in  an  industry  might  warn 
a  manufacturer  against  undue  expansion  of  his  plant  capacity, 
even  though  his  volume  of  sales  was  increasing.9  A  business 
man  might  easily  believe  that  he  was  falling  behind  his  competi- 
tors, when  possession  of  the  facts  would  show  his  relative  posi- 
tion was  even  better.  A  manufacturer  selling  without  knowl- 
edge of  the  facts,  will  sometimes  find  himself  receiving  a  heavy 
volume  of  orders,  which  will  indicate  he  is  strengthening  his 
position  in  the  industry,  when  as  a  matter  of  fact  he  is  only 
the  victim  of  a  wave  of  speculative  buying  in  no  way  repre- 
senting consumers'  demand.  At  the  end  of  a  few  months,  the 
trade  is  overbought,  demand  has  vanished,  cancellations  pour 
in  and  the  manufacturer  is  caught  with  a  heavy  inventory  of 
finished  goods  on  hand,  resulting  from  his  misjudgment  of  the 
facts.  As  a  result  he  is  forced  to  curtail  his  production  and  re- 
duce his  force,  with  a  resulting  loss  of  efficiency  and  positive 
harm  to  labor.  Had  he  possessed  information  as  to  the  situation 
faced  by  his  competitors,  he  would  have  instantly  recognized 
the  demand  as  abnormal  and  speculative,  and  could  have 
planned  his  business  policy  accordingly.10  A  heavy  predomi- 
nance of  small  orders  gives  warning  of  a  possible  oversupply 
and  a  tendency  of  the  trade  to  buy  closely.  Complete  data  on 
current  orders  for  the  entire  industry  enables  a  manufacturer 
to  check  with  his  old  orders  and  thus  accurately  measure  the 


s  Harry  J.  Thayer,  Treasurer,  Tanners'  Council,  Oil  Paint  &  Drug  Re- 
porter, Dec.  9,  1918,  p.  13;  Testimony,  William  O.  Goodrich,  President, 
William  0.  Goodrich  Co.;  Transcript,  United  States  vs  American  Linseed 
Oil  Co.  et  al.,  p.  294;  Testimony  Federick  K.  Quine,  Sales  Manager,  Ameri- 
can Linseed  Oil  Co.,  ibid.,  p.  423;  Frederick  A.  Kessinger,  Proceedings, 
American  Envelope  Mfrs'.  Assn.,  1917,  p.  46. 

9  "The  Open  Price  Plan,"  Roy  A.  Cheney,  Secretary,  Knit  Goods  Mfrs. 
of  America,  Textile  World,  May  7,  1921,  p.  81. 

10  Frederick    A.    Kessinger,    Proceedings,    American    Envelope    Mfrs'. 
Assn.,  1917,  p.  50. 


DISSEMINATION  OF  BUSINESS  FACTS  49 

results  of  advertising  or  other  sales  efforts  which  he  may  deem 
making.11 

If  data  showing  the  supply  and  demand  in  various  regions  is 
compiled,  it  instantly  reveals  the  regions  in  which  there  is  a 
surplus  or  shortage,  thereby  almost  automatically  directing  the  \ 
supply  to  the  points  of  most  active  demand.12  This  natural  ad^ 
justment  stabilizes  the  general  market  and  tends  to  prevent  the . 
assessment  of  unduly  high  prices  in  local  markets.  In  a  similar 
way  data  on  the  production  and  available  supply  of  the  different 
grades  and  varieties  of  a  commodity,  enables  the  manufacturers 
to  shift  their  products  from  the  grades  in  which  there  is  evi- 
dence of  an  oversupply  to  those  on  which  the  demand  is  more 
active.13  Thus  equalization  or  stabilization  of  conditions  is 
maintained  through  the  increased  liquidity  of  the  supply,  which 
prevents  runaway  markets  on  some  grades  and  extremely  low 
prices  on  others.  A  comparison  of  population,  wealth  and  con- 
sumption per  capita  shown  by  reports  of  members  may  also 
reveal  to  the  association  membership  potential  markets  where 
there  are  great  possibilities  for  enlarging  the  sales  of  the  mem- 
bers.14 The  possession  of  facts  places  the  seller  in  a  position 
where  he  can  deal  more  intelligently  with  the  distributor  or 
buyer,  who,  by  reason  of  his  expert  knowledge  of  market  condi- 
tions, may  otherwise  have  a  great  advantage  in  trade.15 

Finally,  the  compilation  of  production  figures  enables  an  in- 
dustry to  gauge  its  progress  as  contrasted  with  competitive  in- 
dustries. Some  industries  have  been  practically  standing  still 
while  their  competitors  have  greatly  enlarged  their  volume  of 
sales.  The  butter  industry,  for  example,  has  for  some  years 

11  Oliver   Wroughton,   Proceedings,   American   Envelope   Mfrs'.   Assn., 
1917,  p.  81. 

12  Charles  S.  Keith,  President,   Southern  Pine  Assn.,  Fourth  Annual 
Proceedings,   1918,  p.   10;   P.  A.  Wheeler,  U.  S.  Bureau  of  Markets,  Pro- 
ceedings,   American    Seed    Trade   Assn.,    1917,    p.    62;    Year   Book,    U.    S. 
Department  of  Agriculture,  1920,  p.  129. 

is  Testimony  D.  F.  Dutweber,  Transcript,  American  Column  &  Lumber 
Co.  vs  United  States,  vol.  3,  pp.  1563,  1568. 

i*  CURTIS:  "Scientific  Research  for  the  Linen  Trade,"  Wm.  Strain  & 
Sons,  Ltd. 

is  Testimony,  N.  H.  Nigh,  Transcript,  American  Column  &  Lumber 
Co.  et  al.  vs  United  States,  vol.  3,  pp.  1670,  1671. 


50  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

made  little  progress,  while  the  sale  of  butter  substitutes  has  tre- 
mendously increased.  As  industries  compile  such  facts  they  will 
be  warned  of  such  conditions  and  constructive  efforts  by  the 
leaders  to  correct  the  situation  will  be  greatly  strengthened.  Be- 
cause of  the  interdependence  of  many  industries,  a  comparison 
of  conditions  in  other  industries  may  also  often  be  of  great 
value.16 

With  reasonably  complete  data  on  existing  supply  as  shown 
by  production,  stocks,  and  current  shipments  and  prevailing 
demand,  as  shown  by  current  and  unfilled  orders,  every  manu- 
facturer and  seller  is  in  a  position  to  make  an  intelligent  de- 
termination as  to  what  his  price  and  as  to  what  his  production 
will  be.  There  will  always  be  great  variation  both  in  price 
and  relative  production,  for  men  will  always  react  differently 
to  the  same  facts.  Variation  in  costs  of  production,  differences 
in  individual  conclusions  as  to  cause  and  effect,  peculiarity  of 
circumstances  surrounding  the  individual  organization  and 
many  other  shifting  factors  will  produce  varying  results.  Po- 
tential competition,  the  natural  tendency  of  men  to  increase 
their  production  as  prices  assure  a  reasonable  profit,  and  all  the 
forces  of  competition  are  given  free  play.  But  these  forces 
operate  on  a  basis  of  facts,  rather  than  on  ignorance,  suspicion 
and  fraud. 

Value  of  Facts  on  Operation  and  Management. — A  third 
group  of  business  statistics,  which  are  of  value  for  competitive 
purposes,  are  figures  on  material  and  labor  costs,  machine  per- 
formance, labor  performance,  wages,  inventories  and  the  like.17 
There  are  few  concerns  which  do  not  have  a  weakness  in  some 
department.  The  publication  of  detailed  cost  figures  reveals  to 
the  individual  business  man  where  he  is  being  outdistanced  by 
his  competitors.  Data  on  machine  and  labor  performance  ad- 
vises him  whether  he  is  getting  average  results  and  may  reveal 

is  William  Butterfield,  National  Implement  Mfrs'.  Assn.,  Official  Sum- 
mary, Conference  of  Trade  Assn.  Representatives,  Washington,  D.  C., 
April  12,  1922,  p.  24;  Ernest  DuBrul,  National  Machine  Tool  Builders' 
Assn.,  ibid.,  p.  33. 

i?  Among  associations  exchanging  data  of  this  character  are  the  South- 
ern Pine  Assn.,  Container  Club,  Associated  Contractors  of  America  and 
the  Silk  Association  of  America, 


DISSEMINATION  OF  BUSINESS  FACTS  51 

heavy  losses,  through,  inefficient  labor  or  equipment.  Data  on 
raw  materials  in  stock,  not  only  measures  the  probable  size  of 
the  remaining  demand,  but  also  gives  him  a  safe  guide  for  his 
own  inventory  policy.  The  constant  publication  of  data,  show- 
ing comparative  utilization  of  materials  so  as  to  emphasize  the 
degree  of  waste  in  an  industry  ought  to  have  a  tendency  toward 
its  partial  elimination.18  There  could  easily  be  built  up  in  the 
course  of  years  a  clearing-house  for  the  ideas  of  the  entire 
membership  of  the  association.  In  an  industry  where  the  mem- 
bers are  competing  with  one  or  two  centralized  concerns,  such 
an  interchange  of  facts  and  methods  can  be  of  inestimable 
value.19  The  real  purpose  of  such  statistics,  should  be  to  enable 
the  individual  concern  to  increase  its  efficiency.  As  the  inef- 
ficient manufacturers  improve  their  conditions  there  will  be  a 
leveling  of  material  and  labor  markets  as  well  as  a  stabilization 
of  price.  But  stabilization  which  naturally  result:  from  the  in- 
dividual efforts  of  business  men  to  approach  the  highest  degree 
of  efficiency  can  scarcely  be  condemned. 

Value  of  Facts  Showing  General  Trend  of  Business. — The 
fourth  variety  of  facts  which  an  association  may  gather  and 
compile  for  the  benefit  of  its  membership,  are  those  fundamental 
facts  which  affect,  and  to  a  degree  may  be  used  as  a  basis  for 
forecasting  the  trend  of  business  in  general.  The  interdepen- 
dence of  industries  and  the  importance  of  certain  factors  in  in- 
dicating the  trend  of  financial,  industrial  and  commercial  condi- 
tions, is  receiving  wider  recognition.  Various  private  services 
have  grown  up  to  supply  such  facts,  which  are  becoming  popu- 
lar among  business  men.  Some  associations  are  gathering  this 
type  of  data  and  correlating  it  with  the  particular  facts  of  their 
industry.  What  factors  may  be  safely  used  in  forecasting 
trends  is  still  in  process  of  determination.  Data  of  such  a  char- 
acter requires  expert  analysis  and  organization  or  it  may  be 
highly  misleading.  It  should  not  be  attempted,  therefore,  with- 
out the  assistance  of  an  expert  statistician.  The  lumber  manu- 


is  CURTIS:  "Scientific  Research  for  the  Linen  Trade,"  Wm.  Strain  & 
Sons,  Ltd. 

is  An  organization  of  this  type  is  the  Biscuit  and  Cracker  Mfrs'. 
Assn. 


52  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

facturers  are  publishing  monthly  tables  and  graphs,  showing  the 
following:  (1)  time  money  rates,  (2)  call  money  rates,  (3)  in- 
dustrial dividend  payments,  (4)  bank  clearings,  (5)  price  of 
industrial  stock,  (6)  prices  of  railroad  stock,  (7)  number  of 
shares  traded  in  New  York  Stock  Exchange,  (8)  bank  clearings, 
(9)  business  failures,  (10)  unfilled  steel  tonnage  of  the  U.  S. 
Steel  Corporation,  (11)  imports  of  merchandise,  (12)  exports 
of  merchandise,  (13)  new  corporations,  (14)  lumber  shipments, 
(15)  lumber  orders,  (16)  Bradstreet's  commodities  index,  (17) 
pig  iron  production,  (18)  bituminous  coal  production,  (19) 
crude  steel  production,  (20)  lumber  production  and  (21)  build- 
ing construction  in  twenty  cities.20  The  Department  of  Com- 
merce is  publishing  each  month  a  wealth  of  statistical  data  of 
this  character,  secured  from  government  agencies,  trade  asso- 
ciations, and  trade  journals.21 

Benefits  to  Public. — The  benefits  to  the  public  from  a  com- 
plete publicity  of  trade  data,  though  generally  ignored,  are  very 
substantial.  In  the  first  place,  possession  of  such  facts  increases 
the  sales  ability  of  thesmaTl  manufacturer.  He  cannot  so  eas- 
ily be  victimized  by  buyers  or  speculators.  The  large  manu- 
facturer, with  his  offices  scattered  throughout  the  country  is 
able  to  keep  in  close  contact  with  market  conditions.  The  small 
manufacturer  often  not  even  possessing  a  sales  organization  is 
greatly  handicapped  in  making  sales  to  distributors,  whose 
greatest  asset  is  their  keen  knowledge  of  market  conditions 
everywhere.22  Where  there  is  a  speculative  group  jn  the  indus- 
try, the  small  manufacturer,  acting  in  ignorance  of  the  facts, 
may  suffer  without  any  corresponding  benefit  accruing  to  the 

20  Graphic   Summary  of  Business   Statistics,  National  Association  of 
Lumber  Mfrs.;   for  a  discussion  of  the  importance  of  various  factors  as 
indicative  of  business  trends,  see  COPELAND,  "Business  Statistics,"  Harvard 
University   Press;    pamphlet,    "The   Business    Cycle,"   Neiv   York  Evening 
Post,  1921. 

21  See  Survey  of  Current  Business,  U.  S.  Department  of  Commerce. 

22  Testimony,  J.  W.  Bailey,  Transcript,  American  Column  &  Lumber 
Co.  et  al.  vs  United  States,  vol.  3,  p.   1640;    Testimony,   F.  R.  Babcock, 
ibid.,  pp.  1544,  1563;  Testimony,  William  0.  Goodrich,  President,  William 
O.  Goodrich  Co.,  Transcript,  United  States  vs  American  Linseed  Oil  Co. 
et  aL,  p.  294. 


DISSEMINATION  OF  BUSINESS  FACTS  63 

public.  Exact  knowledge,  on  the  other  hand,  increases  his  ef- 
ficiency in  trade  and  tends  to  assure  his  maintenance  as  a  source 
of  supply  to  the  general  public.  Secondly,  the  gradual  build- 
ing up  of  a  mass  of  trade  data  in  every  industry,  will  develop 
a  vast  fund  of  accurate,  vital,  trade  information  of  the  utmost 
importance  to  industry  and  government.23  Facts  will  be  avail- 
able on  which  business  studies  can  be  made  of  the  causes  and 
effects  of  depressions  and  other  great  fundamental  trends  in 
industry.  Great  benefits  would  flow  to  industry  and  to  the 
public,  if  such  a  study  could  develop  facts,  which  would  enable 
even  the  partial  elimination  of  the  great  economic  waste  and  de- 
struction of  capital,  which  often  results  from  the  present  or- 
ganization of  industry.  Facts  could  be  made  the  basis  of  fed- 
eral regulations,  rather  than  prejudice  and  misconceptions, 
which  is  sometimes  now  the  case.2*  Third,  the  existence  of  such 
statistics  is  invaluable  to  the  government  and  to  the  industry  in 
time  of  war.  War  with  its  overwhelming  demand  for  materials, 
its  priorities,  its  commandeering  of  plants  and  supplies,  its  food 
regulations,  and  what  not,  makes  the  creation  of  an  accurate 
fund  of  industrial  information  very  much  in  the  public  interest. 
The  world  war  emphasized  the  great  need  and  found  both  the 
government  and  many  industries  seriously  embarrassed,  by  a 
total  lack  of  elementary  facts  regarding  production  and  uses. 
Knowledge  of  the  productive  capacity  of  an  industry,  the 
production  on  hand,  the  available  supply  of  important  war  ma- 
terial may  all  be  of  the  utmost  importance  in  the  development  of 
an  emergency  war  program.  The  need  of  such  information 
was  impressed  upon  governmental  officials  during  the  war, 
and  has  been  publicly  recognized  by  them.25 

Finally,  publicity  of  the  conditions  of  supply  and  demand 

23  Herbert   Hoover,    Secretary   of   Commerce,    Official    Summary;    Pro- 
ceedings of  Conference  of  Trade  Assn.  Representatives,  Washington,  D.  C., 
April  12,  1922,  p.  13. 

24  E.  J.  Cornish,  Chairman,  Statistical  Committee,  National  Paint  Oil 
&  Varnish  Assn.,  Official  Summary,  Conference  of  Trade  Assn.  Representa- 
tives, Washington,  D.  C.,  April  12,  1922,  p.  20. 

25  Lessons  of  War  Cost  Finding:   William  F.  Colver,  Chairman,  Fed- 
eral Trade  Commission,  Annals  of  the  American  Academy,  vol.  82,  March, 
1919,  p.  300. 


54  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

stabilizes  industry  and  tends  to  prevent  violent  price  fluctua- 
tions, with  their  resulting  public  injuries.26  As  already  dis- 
cussed, publicity  as  to  the  facts  of  supply  and  demand  tends 
to  equalize  values  and  to  level  prices  in  all  markets,  by  reveal- 
ing the  points  of  surplus  and  shortage.  Thus  excessive  prices  in 
panic  markets  and  ruinously  low  prices  in  flooded  markets  are  in 
a  measure  avoided.  In  much  the  same  way,  there  is  a  marked 
tendency  to  keep  the  varieties  of  a  product  on  a  fair  basis  of 
competitive  value,  for  facts  showing  a  shortage  or  approach- 
ing shortage  on  one  grade  will  cause  the  manufacturers,  know- 
ing this  condition,  to  divert  production  to  the  grade  in  greater 
demand,  while  an  obvious  oversupply  of  another  grade  will 
cause  manufacturers  to  lessen  their  production  of  such  an  item. 
Thus  there  is  a  natural  tendency,  through  the  normal  operation 
of  the  law  of  supply  and  demand,  functioning  under  a  system 
where  all  the  facts  are  available  to  buyer  and  seller,  for  excessive 
prices  on  certain  grades  to  be  leveled,  so  that  the  entire  line  is 
equalized.  Again,  an  exact  knowledge  of  the  facts  by  buyers  and 
sellers,  tends  on  the  one  hand  to  prevent  sales  at  excessive 
prices  and  on  the  other  to  make  it  more  difficult,  through  fraud 
or  misrepresentation  of  facts,  to  buy  at  unduly  low  prices.  Op- 
portunity for  one  manufacturer  to  compare  his  ability  in  pro- 
duction and  in  selling  with  that  of  other  competitors  is  afforded, 
thus  enabling  him  to  improve  his  own  methods  where  they  are 
defective.  It  should  be  frankly  admitted,  therefore,  that  one  of 
the  main  purposes  and  benefits  flowing  from  a  complete  publicity 
of  trade  data,  is  its  tendency  to  stabilize  prices.  In  the  absence 
of  artificial  factors,  such  as,  agreements  to  fix  prices  or  curtail 
production,  this  stabilization  springs  from  the  unhampered  play 
of  competition  between  many  sellers  and  buyers,  each  of  whom  in- 

26  Annual  Report,  Henry  H.  Rolapp,  President,  U.  S.  Sugar  Mfrs'. 
Assn.,  March  28,  1918:  Interview,  Henry  R.  Seager,  Columbia  University, 
New  York  Evening  Post,  March  21,  1922;  Address,  President  McElwain, 
Fifteenth  Annual  Convention,  National  Assn.  of  Boot  &  Shoe  Mfrs.,  p. 
101;  Testimony,  George  E.  Martin,  Vice-president,  Sherwin-Williams  Com- 
pany, Transcript,  United  States  vs  American  Linseed  Oil  Co.  et  aL,  p.  347; 
see  also  "Waste  in  Industry,"  Report  of  Federated  American  Engineering 
Societies,  1921,  p.  30. 


DISSEMINATION  OF  BUSINESS  FACTS  55 

dividually  shapes  his  own  business  policy  on  facts,  rather  than 
on  ignorance. 

Surely  a  stabilization  of  price  which  is  the  natural  result  of 
an  increased  liquidity  of  the  supply  and  its  more  sensitive  re- 
action to  demand,  and  which  tends  to  place  all  buyers  on  a 
more  nearly  equal  footing  is  not  against  the  public  interest. 
Surely  a  leveling  of  price  between  grades  or  varieties,  resulting 
solely  from  the  reaction  of  individual  intelligence  to  known  facts 
and  tending  to  maintain  fair  comparative  values  to  every  one, 
is  not  detrimental  to  the  public.  Surely  a  leveling  of  price 
which  naturally  results  from  the  partial  elimination  of  fraud, 
deception  and  ignorance  by  the  seller  or  buyer  in  trade  does  not 
harm  the  public.  Surely  a  tendency  toward  less  variation  in 
price,  which  is  the  result  of  increased  efficiency  reducing  the 
costs  of  producers,  is  not  to  be  condemned.  As  a  matter  of 
fact,  the  violent  fluctuations  in  price  characteristic  of  many 
of  our  industries  are  very  much  against  the  interests  of  the 
public.  The  public  probably  pays  more  in  dollars  and  cents 
per  unit  of  goods  under  such  conditions.  The  risks  of  a  fluc- 
tuating market  compel  sellers  to  take  a  larger  maximum  of 
profit  regularly,  in  order  to  protect  themselves.27  Our  system 
of  distribution  involves  several  handlings  of  the  goods  before 
they  reach  the  consumer.  "When  manufacturers'  prices  advance 
strongly,  it  is  but  human  nature  for  the  wholesaler,  retailer  and 
other  factors  in  the  industry  to  quickly  mark  up  their  goods. 
"When  prices  decline,  it  is  likewise  human  nature  not  to  want 
to  take  a  loss  and  any  fall  in  the  price  the  consumer  pays  is 
therefore  retarded.  The  result  is  that  the  consumer  quickly  feels 
the  advances,  but  gets  only  a  portion  of  the  decline.  In  rapidly 
fluctuating  markets,  upturns  in  price  which  are  generally  al- 
most immediately  reflected,  check  the  decline  in  distributors' 
prices  before  they  reach  bottom  with  the  result  that  the  public 
often  does  not  get  the  full  benefit  of  the  lower  price  offered  by 
the  manufacturer.  Widely  fluctuating  prices,  moreover,  invite 
speculation  and  the  entry  of  speculators  not  needed  in  the  eco- 
nomic structure  of  the  industry,  with  a  resulting  natural  ten- 

27  Testimony,  Louis  M.  Leffingwell,  President,  Northern  Linseed  Oil 
Co.;  Transcript,  United  States  vs  Ar.ierican  Linseed  Oil  Co.  et  al.,  p.  415, 


56  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

dency  toward  increased  cost  to  the  community.28  Speculative 
buying  disrupts  the  normal  conditions  of  an  industry.  In  the 
absence  of  accurate  trade  data,  speculative  buying  often  pro- 
duces temporary  overproduction  which  in  turn  compels  subse- 
quent shutdowns,  increased  overhead  expense,  unemployment  of 
labor  and  other  well  recognized  evils.  With  accurate  knowledge, 
manufacturers  ought  at  least  to  be  able  to  curb  harmful  specu- 
lation to  a  considerable  extent.  Stabilization  of  prices,  when 
it  results  from  the  cumulative  effects  of  the  individual  business 
policies  of  many  competitors,  as  distinguished  from  agreements, 
express  or  implied,  restricting  production  or  price,  is  a  great 
public  benefit,  assuring  to  the  public  a  lower  and  non-discrim- 
inatory average  price  and  to  the  industry  steadier  production 
and  greater  freedom  from  speculation.  Always  in  reserve  as  an 
additional  safeguard  against  the  imposition  of  unreasonable 
prices,  are  the  forces  of  potential  competition,  the  competition 
of  industries  producing  substitutes  and,  in  the  absence  of  tariff 
restrictions,  the  force  of  foreign_comrjetition. 

Methods  of  Compilation. — An  association  contemplating  the 
compilation  of  statistics  of  this  character  may  use  any  one  of 
three  methods.  First,  the  data  may  be  gathered,  compiled  and 
circulated  through  the  office  of  the  secretary  of  the  association. 
This  is  the  most  common  method.  Second,  some  person  or  or- 
ganization entirely  independent  of  the  association  may  be  em- 
ployed. Some  associations  employ  an  accountant  to  conduct 
the  work,  in  order  to  assure  to  their  members  privacy  of  indi- 
vidual returns  and  accurate  compilations.29  Other  associations 
employ  an  attorney  to  conduct  the  work,  in  order  to  avoid  the 
possibility  of  violation  of  law.30  Other  associations  employ 
regular  commercial  agencies,  which  have  been  organized  to 
handle  such  work.31  Third,  a  number  of  associations  have  se- 
as See  address  Herbert  Hoover,  U.  S.  Secretary  of  Commerce,  Official 
Summary,  Conference  of  Trade  Assn.  representatives,  Washington,  D.  C., 
April  12,  1922. 

29  For  example,  this  is  the  method  followed  by  Pressed  Metal  Assn. ; 
see  "Open  Price  Association,"  H.  R.  Tosdal,  American  Economic  Review, 
June,  1917,  p.  341. 

so  This  is  the  method  employed  by  the  Pyroxylin  Plasters  Mfrs'.  Assn. 
si  This  is  the  method  followed  by  the  Associated  Metal  Lath  Mfrs.  and 
the  Linseed  Oil  Council. 


DISSEMINATION  OF  BUSINESS  FACTS  57 

cured  the  cooperation  of  the  government  in  the  collection  and 
dissemination  of  trade  data  of  this  character.  The  Department 
of  Agriculture  has  for  years  published  current  statistics  of  farm 
products  and  products  manufactured  from  farm  products.32 
The  value  of  its  crop  estimates  has  of  course  been  long  known, 
the  compilation  and  publication  of  which  have  been  surrounded 
with  the  greatest  secrecy,  in  order  to  prevent  advance  informa- 
tion being  secured.  The  Department  has  developed  this  phase 
of  its  work  to  a  far  greater  extent  than  is  generally  known. 
The  Bureau  of  Markets  has  a  large  number  of  branch  offices  in 
all  of  the  largest  market  centers.  It  maintains  over  four  thou- 
sand miles  of  leased  telegraph  wires  to  furnish  the  freshest  pos- 
sible information.  The  radio  is  now  also  being  employed.  Mar- 
ket experts  are  kept  in  constant  touch  with  market  conditions 
and  over  15,000  individual  voluntary  reporters  render  regular 
reports  to  the  bureau  on  the  marketing  of  farm  products.  This 
department  aims  to  place  daily  national  market  information  in 
the  hands  of  all  producers  through  the  use  of  the  wireless.  It 
is  getting  out  weekly  and  special  reports,  not  only  on  farm 
products,  but  also  on  articles  manufactured  from  them.  Facts 
as  to  receipts,  stocks,  prices,  and  strength  of  the  various  markets 
of  butter,  cheese,  powdered  milk,  condensed  milk  and  so  on  are 
published.33  This  department  has  in  fact  developed  a  great 
national  system  of  fact  collection  and  distribution,  for  the  bene- 
fit of  producers  and  distributors  of  farm  products,  and  manu- 
facturers of  products,  produced  largely  from  these  materials. 
The  farmers  of  the  country  are  now  demanding  a  further  en- 
largement of  this  service.  If  their  recommendations  are  fol- 
lowed, a  service  incomparably  more  comprehensive  than  that  de- 
veloped by  any  trade  association  will  be  carried  on  by  the  de- 
partment.34 The  Federal  Trade  Commission  also,  several  years 
ago,  began  the  compilation  of  data  designed  to  assemble  cur- 
rent prices,  costs  and  production  figures,  in  the  great  basic  in- 

32  Year  Book:  U.  S.  Department  of  Agriculture,  p.  127  ff. 

33  See   "Weather   Crops  and  Markets,"  published  weekly;    "Powdered 
Milk  Market  Report,"  published  monthly;  "Weekly  Cheese  Market  Report," 
all  published  by  the  Bureau  of  Markets,  Department  of  Agriculture. 

34  See  Final  Report  of  Committee  on  Crops  and  Market  Statistics,  to 
the  National  Agricultural  Conference,  Jan.  26,  1922. 


58  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

dustries  of  the  country.  The  Commission,  however,  utilized  its 
powers  to  compel  the  production  of  such  information  and  the 
opposition  of  several  concerns  in  the  steel  and  coal  industries, 
has  resulted  in  the  work  being  temporarily  discontinued,  pend- 
ing a  final  decision  by  the  courts  as  to  the  power  of  the  commis- 
sion. For  several  years,  monthly  summaries  on  production, 
stocks,  shipments,  cost  of  production,  and  similar  data,  have  been 
compiled  by  the  commission  for  the  manufacturers  of  wood  pulp 
and  other  kind  of  pulp  used  in  newspaper  making.35 

Secretary  Hoover  of  the  United  States  Department  of  Com- 
merce is  now  developing  a  great  organization  for  cooperation 
with  all  American  industries  in  the  dissemination  of  business 
facts.  This  department,  by  reason  of  the  census  machinery  pos- 
sessed by  it,  is  in  a  position  to  build  up  a  very  effective  organi- 
zation for  the  quick  dissemination  of  such  facts  while  they  re- 
tain their  practical  business  value.  Over  thirty  national  trade 
associations  are  now  furnishing  data  to  the  department  which 
is  published  monthly.36  With  the  cooperation  of  the  business 
community,  this  department  can  rapidly  develop  into  a  great 
agency  for  the  compilation  and  broadcasting  of  all  those  facts 
which  have  a  direct  interest  to  business  men.  While  the  ex- 
pense of  compilation  would  make  such  work  by  the  department 
almost  prohibitive,  the  many  trade  associations  of  the  country, 
by  lending  their  organizations  for  the  collection  of  information, 
can  utilize  this  department  for  its  widespread  distribution.  In 
view  of  the  possible  danger  of  misrepresentation  of  facts  by  as- 
sociations when  such  facts  are  given  general  publicity,  as  in- 
dicated by  the  various  proceedings  against  exchanges  for 
"wash  sales/'  fictitious  sales,  and  the  like,  the  government 
should  protect  the  public  by  proper  requirements  assuring  the 
accuracy  of  the  data  it  publishes. 

Legality. — The  Attorney  General  of  the  United  States,  in  a 
recent  opinion  to  the  Secretary  of  Commerce,  held  that  the  com- 
pilation of  production,  distribution  and  price  statistics  is  not 

as  See  "Statistical  Summary"  of  the  Paper  Industry,  for  August,  1921 ; 
and  "Wood  Pulp  Review"  for  July,  1921,  issued  by  the  Federal  Trade 
Commission. 

36  See  "Survey  of  Current  Business,"  April,  1922,  p.  44,  U.  S.  Depart- 
ment of  Commerce. 


DISSEMINATION  OF  BUSINESS  FACTS  59 

illegal,  provided  always  that  whatever  is  done  is  not  used  as  a 
scheme  or  device  to  curtail  production  or  enhance  prices,  and 
does  not  have  the  effect  of  suppressing  competition.37  A  lower 
Federal  court,  in  the  strongest  language,  has  sustained  the  pro- 
priety of  the  dissemination  by  an  association  of  facts  of  this 
character,  including  price  statistics,  in  the  absence  of  any  proof 
of  express  or  tacit  understandings  to  regulate  price  or  produc- 
tion.38 This  court  called  the  bureau  disseminating  these  facts 
"a  bureau  of  intelligence  and  one  which  makes  for  real  rather 
than  artificial  competition  in  trade."39  The  fact  that  the  ex- 
change of  such  information  stabilized  the  market,  and  to  a  cer- 
tain extent  tended  toward  less  deviation  in  price,  in  the  absence 
of  any  agreement,  was  held  not  to  be  in  violation  of  the  law. 

But  where  there  is  any  effort  to  utilize  the  machinery  adopted 
for  such  an  interchange  of  facts,  as  part  of  a  scheme  to  restrict 
production  or  fix  prices,  even  in  a  tacit  or  implied  way,  the 
almost  certain  result  is  a  violation  of  the  law.  In  the  recent 
decision  of  the  United  States  Supreme  Court  involving  the  open 
price  plan  of  the  American  Hardwood  Manufacturers'  Associa- 
tion, the  court  was  unsparing  in  its  condemnation  of  the  plan, 
which  involved,  not  only  the  mere  interchange  of  information, 
but  also  frequent  meetings,  the  withholding  of  such  information 
from  buyers,  the  analysis  of  such  facts  by  an  expert  and  the 
publication  of  letters  and  bulletins,  urging  increases  in  price 
and  restriction  in  production,  all  of  which  resulted  in  a  cur- 
tailment in  production  and  contributed  to  an  extraordinary  in- 
crease in  price.40  There  was  in  this  case,  not  the  mere  exchange 
of  facts  for  common  information,  but  meetings,  recommenda- 
tions, reports  of  the  membership  as  to  future  markets,  and  other 
facts  which  created  implied  understandings  to  restrain  trade, 
which  of  course  made  the  entire  plan  unlawful.  The  court  it- 
self was  careful  to  point  out  this  distinction. 

There  would  appear  to  be  no  sound  basis  in  law  for  holding 

37  See  Appendix  J. 

38  United  States  vs  American   Linseed  Oil   Co.   et  al,   275   Fed.   939 
(1921). 

39  IUd.,  946. 

40  American  Column  &  Lumber  Co.  et  al,  vs  United  States,  14  Sup. 
Ct.  Rep.  114   (1921). 


60  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

that  the  mere  exchange  of  information,  without  any  further  co- 
operative action  is  unlawful.  Any  association,  however,  plan- 
ning to  compile,  distribute  and  broadcast  the  business  facts  of 
the  industries  secured  from  different  members,  in  order  to  avoid 
any  possibility  of  violation  of  law,  should  be  exceedingly  careful 
that  this  plan  complies  with  the  following  requirements :  First, 
only  the  naked  facts  should  be  circulated,  without  any  recom- 
mendation of  any  officials  of  the  association.  As  soon  as  any 
recommendations  are  made,  the  almost  inevitable  tendency  is 
for  a  situation  to  arise  where  the  members,  or  a  considerable 
portion  of  them,  cease  to  make  their  own  individual  judgment 
on  the  facts,  but  simply  follow  the  recommendations  made  and 
an  implied  understanding  in  violation  of  the  law  arises. 

Second,  there  should  be  no  publication  of  prices.41  While  it 
is  extremely  doubtful  that  the  mere  circulation  of  prices  on  sales 
consummated  is  unlawful,  yet  the  opposition  of  the  government 
to  the  circulation  of  price  information  establishes  a  risk  of  pub- 
lic prosecution,  which  no  association  earnestly  striving  to  com- 
ply with  the  law  can  afford  to  take.42  It  is  almost  certain  that 
the  publication  of  high,  low  and  average  prices,  on  sales  consum- 
mated by  members  of  an  association,  will  not  be  held  to  be  un- 
lawful. On  the  other  hand,  the  publication  of  the  individual 
prices  identifying  the  members  making  them,  not  only  creates 
an  opportunity  for  the  exercising  of  social  pressure  on  the 
price-cutter,  but  also  furnishes  the  basis  on  which  a  "follow  the 
leader"  plan  can  easily  be  made  very  effective.  In  a  similar 
way  it  is  unwise  to  publish  individual  figures  of  production. 
Accurate  data  on  the  total  production  of  his  industry,  and 
the  total  demand  is  of  aid  to  the  manufacturer  in  determin- 
ing his  own  business  policy.  The  publication  of  individual 

41  An  investigation  by  the  Federal  Trade   Commission,   discloses   150 
associations   distributing  price   information:    Letter,    J.   P.   Yoder,    Secre- 
tary, Jan.  23,  1922. 

42  Most  of  the  Government  Departments  which  have  given  study  to 
this  question  seem  opposed  to  the  so-called  open  price  association,  i.e.,  those 
exchanging  prices,  as  not  in  the  public  interest.     Letter,  Federal   Trade 
Commission  to  the  President  of  the  United  States,  April  18,  1921;  State- 
ment,  Herbert   Hoover,    Secretary   of   Commerce,    Official    Summary,    Con- 
ference  of   Trade   Assn.    Representatives,    Washington,   D.    C.,    April    12, 
1922,  p.  3. 


DISSEMINATION  OF  BUSINESS  FACTS  61 

facts  of  production  in  an  industry  where  there  are  several  very 
large  concerns  may  tend  to  cause  the  members  of  an  association 
to  follow  the  policy  of  some  one  of  the  larger  concerns  in  whose 
judgment  they  have  confidence  with  the  result  that  a  general 
policy  of  restriction  of  production  could  easily  become  effective 
in  the  industry. 

Third,  the  data  circulated  should  be  accurate.  The  report- 
ing of  sales  which  were  not  bona  fide,  or  the  elimination  of  any 
data,  such  as  very  low  prices  made  by  some  member,  or  the  sup- 
pression of  some  facts  on  production  designed  to  mislead  the 
membership  as  to  price  or  production  conditions,  so  as  either  to 
bring  about  a  possible  enhancement  of  prices  or  curtailment  of 
production  or  to  deceive  buyers  who  secure  such  information 
would  be  unlawful.  The  government  has  in  the  past  brought 
several  proceedings  against  organizations  which  have  reported 
fictitious  or  ' '  washed  sales ' '  or  pretended  purchases  for  the  pur- 
poses of  deception  and  restraint  of  competition.43 

"FOIirfor  thr^  should  be  no  meetings  for  the  consideration  of 
the  facts  gathered.  The  practice  of  holding  frequent  meetings 
for  the  consideration  of  such  data,  not  only  affords  an  oppor- 
tunity for  putting  pressure  on  members  who  cut  prices  or  en- 
large their  production,  but  also  inevitably  tends,  through  dis- 
cussion of  conditions  and  trends  to  tacit  agreements  to  restrict 
production  or  fix  prices.  Under  no  conditions  should  meetings 
be  held  for  the  analysis  and  discussion  of  such  facts  unless  an 
attorney  who  is  not  afraid  to  lose  his  retainer  is  present  to 
control  rigorously  the  limits  of  the  discussion. 

Finally,  there  should  be  a  simultaneous  publication  of  the 
data  to  the  members  and  all  other  parties  interested.  This  re- 
quirement of  complete  publicity  has  been  stressed  by  govern- 
ment officials.4*  The  Supreme  Court  in  the  Hardwood  Case 
gave  considerable  emphasis  to  the  fact  that  the  statistics  of  the 

43  Decree,   United  States  vs  Chicago  Butter  &  Egg  Board,  Decrees  & 
Judgments  in  Federal  Anti-Trust  Cases,  p.  261;    Consent  decree,   United 
States  vs  Elgin  Board  of  Trade,  iUd.,  p.  402. 

44  Address,  Herbert  Hoover,  U.  S.  Secretary  of  Commerce,  Official  Sum- 
mary, Conference  of  Trade  Assn.  Representatives,  Washington,  D.  C.,  April 
12,  1922,  p.  14;  Letter  of  Federal  Trade  Commission  to  the  President  of 
the  United  States,  April  18,  1921,  p.  3. 


62  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

hardwood  association  were  not  distributed  to  the  public.  The 
publication  of  such  data,  while  it  may  take  away  from  the  mem- 
bers of  the  association  some  advantages  in  trading,  does  not  de- 
prive the  membership  of  the  basic,  economic  benefits  which  flow 
from  the  limitation  of  speculation,  the  increased  liquidity  of 
supply,  the  freedom  from  misrepresentation  and  the  compre- 
hensive knowledge  of  the  facts,  which  the  publication  of  such 
statistics  procures. 

There  can  be  little  doubt  that  the  compilation  and  broad- 
casting of  the  basic  facts  of  an  industry  is  one  of  the  greatest 
of  trade  association  activities.  Misused  it  is  vicious.  And  any 
association  attempting  to  misuse  such  facts  must  expect  ulti- 
mately to  pay  the  penalty.  But  when  used  properly,  the  com- 
pilation and  current  publication  of  the  basic  facts  of  an  indus- 
try, either  by  the  government  or  by  an  association,  is  of  real 
value  in  the  maintenance  and  efficient  operation  of  our  com- 
petitive system. 


CHAPTER  V 
THE  STUDY   OP    COST   AND   ACCOUNTING   METHODS 

THE  Federal  Trade  Commission,  by  its  educational  campaign 
several  years  ago  urging  the  importance  of  an  accurate  knowl- 
edge of  costs  in  our  various  industries,  greatly  stimulated  the 
interest  of  business  men  and  trade  associations  in  this  subject.1 
Many  trade  associations  have  developed  uniform  cost  account- 
ing systems  within  the  past  few  years.2  The  Chamber  of  Com- 
merce of  the  United  States  with  its  program  for  the  more  wide- 
spread use  of  cost  systems  has  added  great  impetus  to  the  move- 

1  The  Commission  has  issued  the  following  pamphlets  of  cost  account- 
ing which  have  had  a  very  large  circulation:    "Fundamentals  of  a  Cost 
System  for  Manufacturers,"   July    1,    1916;    "A   System   of   Accounts   for 
Retail  Merchants/'  July  15,  1916.     See  also  numerous  addresses  of  E.  N. 
Hurley  while  Chairman  of  the  Commission. 

2  The  following  associations  are  a  few  of  the  associations  which  have 
adopted  or  are  planning  the  adoption  of  cost  accounting  systems  of  some 
sort:  American  Warehousemen's  Assn.,  National  Assn.  of    Retail  Clothiers, 
Portland    Cement    Assn.,    National    Coal    Assn.,    National    Implement    & 
Vehicle    Assn.,    Associated    Cooperage     Industries    of    America,    Flavor- 
ing   Extract    Mfrs'.    Assn.    of    U.    S.,    National    Pipe    &    Supplies    Assn., 
West   Coast  Lumbermen's   Assn.,    Southern    Pine   Assn.,    Refractories    Ac- 
countants' Institute,  National  Coffee  Roasters'  Assn.,  U.  S.  Potters'  Assn., 
United  Typothetae  of  America,  Laundry-owners'  National  Assn.,  American 
Photo-Engravers'  Assn.,  National  Wholesale  Grocers'  Assn.,  National  Assn. 
of  Ice  Cream  Mfrs.,  National  Wholesale  Druggists'  Assn.,  National  Warm 
Air  Heating  &  Ventilating  Assn.,  National   Retail   Jewelers'   Assn.,   Cost 
Assn.  of  the  Paper  Industry,  Paint  Mfrs'.  Assn.  of  the  United  States,  Bag- 
gage Mfrs'.  Assn.,  American  Face  Brick  Assn.,  Associated   General   Con- 
tractors of  America,  Asphalt  Assn.,  Steel  Barrel  Mfrs.'  Assn.,  Interstate 
Cotton  Seed  Crushers'  Assn.,  National  Assn.  of  Finishers  of  Cotton  Fabrics, 
Associated  Mfrs.  of  Electrical  Supplies,  Electrical  Mfrs'.  Council,  National 
Assn.  of  Farm  Equipment  Mfrs.,  American  Foundrymen's  Assn.,  Central 
Bureau  of   Dining  Table  Mfrs.,  National   Alliance   of   Case   Goods   Assn., 
National  Assn.  of  Steel  Furniture  Mfrs.,  National  Assn.   of  Upholstered 
Furniture  Mfrs.,  Associated  Wooden  Ware  Mfrs.,  Webbing  Mfrs.  Exchange, 
American  Bakers'  Assn.,  International  Stamp  Mfrs'.  Assn.,  Plywood  Mfrs'. 


64  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

ment.3  Few  forms  of  associated  activities  produce  more  far- 
reaching  results  in  establishing  healthful  conditions  of  efficient 
production  and  distribution  than  the  education  of  the  several 
branches  of  an  industry  in  accurate  methods  of  accounting  and 
cost  finding.  But  there  are  few  activities  in  which  it  is  more 
difficult  to  draw  the  line  between  that  which  is  lawful  and  that 
which  is  unlawful. 

Benefits  of  Use  of  Cost  Accounting  Systems. — A  general 
use  of  a  uniform  system  of  cost  accounting  not  only  benefits 
the  individual  members  but  also  has  a  healthful  reaction  on  the 
entire  industry.  It  is  this  larger  general  benefit  which  makes 
this  activity  of  special  interest  to  trade  organizations.  To  the 
individual,  an  accurate  cost  system  is  invaluable. 

Sound  Basis  for  Determination  of  Price. — In  the  first  place 
it  furnishes  a  sound  definite  basis  on  which  to  fix  a  selling  price.4 
The  investigations  of  the  Federal  Trade  Commission  in  1915 
showed  a  large  percentage  of  manufacturers  had  no  cost  sys- 
tems whatever  and  based  their  selling  price  on  guess  work  or 
on  the  rumored  prices  of  their  competitors.5  In  some  industries 
involving  many  complicated  operations,  a  correct  ascertainment 

Assn.,  Label  Mfrs'.  Assn.,  National  Assn.  of  Ice  Industries,  National  Assn. 
of  Printing  Ink  Makers,  Leather  Belting  Exchange,  Sterling  Silver  Mfrs'. 
Assn.,  National  Lime  Assn.,  Railway  Car  Mfrs'.  Assn.,  Western  Pine  Mfrs'. 
Assn.,  American  Drop  Forging  Institute,  National  Assn.  of  Sheet  and  Tin 
Plate  Mfrs.,  National  Assn.  of  Brass  Mfrs.,  Pressed  Metal  Assn.,  Folding 
Box  Mfrs'.  National  Assn.,  Box  Board  Mfrs'.  Assn.,  National  Paper  Box 
Mfrs'.  Assn.,  Tubular  Plumbing  Goods  &  Tank  Fittings  Exchange,  Assn. 
of  Mfrs.  of  Chilled  Car  Wheels,  and  the  National  Canners'  Assn. 

3  The  Fabricated  Production  Department  of  the  Chamber  of  Commerce 
of  the  United  States  has  published  various  pamphlets  and  bulletins  on  cost 
accounting  problems  and  has  collected  a  number  of  cost  systems  of  trade 
associations.  It  willingly  gives  the  benefit  of  its  experience  and  data  to 
associations  contemplating  the  installation  of  cost  systems. 

*  "Importance  of  Cost  Analysis  and  Its  Relation  to  Price,"  The 
Annalist,  Aug.  18,  1919,  p.  200;  "Uniform  Plan  of  Cost  Accounting  Con- 
trol," Cooley  &  Marvin  Company,  p.  4;  "Fundamentals  of  a  Cost  System 
for  Manufacturers,"  Federal  Trade  Commission,  1916,  p.  30;  "What  a 
Cost  System  Should  Do  for  You,"  Chamber  of  Commerce  of  the  United 
States,  1920;  Report  of  Committee  on  Production  Costs,  National  Assn.  of 
Cotton  Mfrs.,  Textile  World,  April  30,  1921,  p.  109. 

5  Annual  Report,  Federal  Trade  Commission,  1916,  p.  15. 


COST  AND  ACCOUNTING  METHODS  65 

of  cost  is  impracticable.6  The  steadily  narrowing  margin  of 
profits  in  most  of  our  industries,  resulting  from  the  develop- 
ment of  volume  production,  makes  guesswork  in  the  fixing  of 
the  sales  price  hazardous  if  profits  are  to  be  maintained.7  An 
error  in  fixing  prices  resulting  in  losses  forces  attempts  to  sub- 
sequently recoup  such  losses  through  unduly  high  prices. 
Greater  instability  of  prices  is  often  the  result  which  could  have 
been  avoided  through  an  accurate  knowledge  of  cost.8  By  a 
careful  analysis  of  the  elements  of  cost,  which  a  cost  system  pro- 
vides, an  accurate  definite  picture  of  the  real  cost  of  doing 
business  is  secured  upon  which  a  manufacturer  can  safely 
ground  his  price  and  production  policy.  He  will  be  saved  from 
the  mistakes  constantly  being  made  of  failing  to  allow  properly 
for  depreciation,  obsolescence,  depletion  and  other  items  which 
often  result  in  an  actual  dissipation  of  capital  assets  when  the 
seller  imagines  he  is  making  a  profit.  He  will  have  a  means 
of  accurately  estimating  and  apportioning  his  overhead,  his 
material  and  labor  costs  instead  of  merely  making  an  arbitrary 
estimate.  Personal  supervision  of  all  the  details  and  processes 
entering  into  cost  is  an  absolute  impossibility  in  the  large  plant. 
An  executive  cannot  hope  to  have  any  accurate  knowledge  of 
his  costs  unless  they  are  carefully  determined  in  a  scientific  way. 
Where  the  manufacturer  has  heretofore  relied  on  an  uncertain 
knowledge  of  conditions  of  supply  and  demand,  and  often  on 
uncertain  information  as  to  the  prices  of  his  competitors,  a  cost 
system  furnishes  him  additional  certain  definite  data  on  which 
to  base  his  own  selling  policy.  If  the  business  offered  him  is  un- 
profitable, he  can  let  the  other  fellow  have  it  or  if  depressed 
conditions  of  demand  compel  prices  below  cost,  he  knows  exactly 
the  loss  entailed  in  handling  the  order  and  can  balance  accur- 
ately such  loss  as  against  the  indirect  benefits  in  taking  the 
order. 

Locates  and  Eliminates  Waste. — An  accurate  cost  system  pro- 

e  "The  Necessity  of  Proper  Accounting  Methods,"  L.  F.  Folsom,  Photo- 
Engravers'  Bulletin,  July,  1918,  p.  101. 

7  "Fundamentals  of  a  Cost  System  for  Manufacturers,"  Federal  Trade 
Commission,  1916,  p.  6. 

s  "Importance  of  Cost  Analysis  and  Its  Relation  to  Price,"  The  Annal- 
ist, Aug.  18,  1919,  p.  200. 


66  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

motes  efficiency  by  enabling  a  manufacturer  to  locate  and  elimi- 
nate wastes.9  Such  wastes  take  many  forms.  They  may  result 
from  the  use  of  obsolete  machinery ;  they  may  be  caused  by  in- 
efficient labor ; 10  they  may  result  from  wasteful  use  of  material, 
petty  thievery  or  what  not.11 

Aids  in  Improvement  of  Quality. — A  cost  system  is  often  of 
aid  in  improving  quality.    Active  cooperation  between  the  cost 

9  "Fundamentals  of  a  Cost  System  for  Manufacturers,"  Federal  Trade 
Commission,   1916,   p.   30;    Photo-Engravers'  Bulletin,   July,    1918,   p.    13; 
"What  a  Cost  System  Should  Do  for  You,"  Chamber  of  Commerce  of  the 
United  States,  p.  4. 

10  See   "Securing   Effective    Work   from   Labor,"    Official   Publications 
National  Assn.   of   Cost  Accountants,   vol.   3,   No.    5,   Nov.    15,    1921.     It 
is   interesting    also    to    note   that   the   National   Assn.   of    Manufacturing 
Photo-Engravers  in  order  to  secure  the  cooperation  of  the  International 
Photo-Engravers'  Union  of  North  America  in  the  installation  and  operation 
of  their  cost  system  were  apparently  compelled  to  enter  into  an  agreement 
with  the  Union  that  such  system  should  not  be  used  "by  any  employer 
for  the  purpose  of  checking  up  or  speeding  up  the  workmen."     See  agree- 
ment, Oct.  1,  1913,  in  "Manual  of  Simple  Cost  System,"  International  Assn. 
of  Manufacturing  Photo-Engravers,  Nov.,  1916,  Edition,  p.  19.    As  a  result 
of  a  conference  between  the  manufacturers'  association  and  the  union  in 
June,  1916,  it  was  agreed  by  the  manufacturers  that  the  cost  system  should 
be  based  upon  a  departmental  plan,  access  to  the  records  being  given  the 
officers  of  the  union  to  prevent  the  use  of  the  system  for  speeding  up  pur- 
poses.    The  annual  convention  of  the  union  subsequently  adopted  a  report 
opposing  any  system  of  cost  finding  "intended  or  which  could  be  used  for 
the  purpose  of  speeding  up  our  members  and  creating  undue  suspicion  of 
unfair  competition  between  them,  or  to  prevent  them  in  realizing  an  im- 
proved condition  of  work  by  a  cunning  and  subtle  use  of  individual  time 
records."      Bulletin    of    International    Assn.     of    Manufacturing    Photo- 
Engravers. 

11  The  system  installed  by  the  laundry  owners  revealed  large  wastes 
in  labor  costs,  fuel  consumption,  and  excessive  collection  and  delivery  ex- 
pense.    In  some  cases  these  costs  were  double  what  they  should  have  been. 
"Cost  Accounting  in  the  Laundry  Industry,"  Official  Publication,  National 
Assn.  of  Cost  Accountants,  vol.  3,  No.  3,  Oct.,   1921.     In  one  paper  mill 
the  cost  system  immediately  detected  an  increase  in  daily  consumption  of 
bleach  powder  which  on  investigation  was  found  to  be  due  to  fictitious 
readings  resulting  from  the  use  of  a  cracked  hydrometer,  a  leak  which  if 
not  caught  could  easily  have  cost  the  mill   $2,000  per  month.     Address, 
"The  Need  of  Close  Contact  between  Cost  and  Technical  Men,"  Fred  C. 
Clark,    Sixth    Semi-annual    Convention,    Cost    Assn.    of    Paper    Industry, 
Oct.  6,  1921. 


COST  AND  ACCOUNTING  METHODS  67 

expert  and  the  technical  man  in  a  close  study  to  reduce  costs 
and  procure  more  economical  operation  often  develops  and  im- 
proves new  processes  for  making  a  better  product.12 

Aids  in  Stimulating  Production. — A  cost  system  explained 
by  charts,  totals  and  percentages  picturing  graphically  the  work 
of  each  individual  and  department  can  sometimes  be  of  sub- 
stantial help  in  stimulating  production  and  securing  the  co- 
operation of  the  workers  in  the  plant.13 

Aids  in  Bettering  Credit  Standing. — The  individual  may 
often  find  a  cost  system  which  gives  accurate  information  as  to 
the  condition  of  his  business,  of  decided  help  in  securing  a  better 
credit  standing  with  his  banker.14 

Attracts  Trade. — In  industries  involving  job  work,  the 
knowledge  that  the  seller  fixes  his  sales  price  on  the  basis  of 
actual  cost  plus  a  reasonable  profit  without  discrimination  be- 
tween his  customers,  may  be  the  means  of  attracting  and  hold- 
ing customers.  Some  business  men  find  a  cost  system  pays  for 
itself  in  this  way  alone.  In  cases  of  dispute  the  submission  of 
the  cost  record  to  the  customer  will  often  convince  him  of  the 
reasonableness  of  the  price  and  result  in  the  retention  of  his 
patronage.15  One  photo  engraver  found  the  policy  of  making 

12  "Need  of  Close  Contact  between  Cost  and  Technical  Men,"  Fred  C. 
Clark,  Sixth  Semi-annual  Convention,  Cost  Assn.  of  Paper  Industry,  Oct. 
6,  1921. 

is  Address,  "The  Necessity  of  Cooperation  between  the  Superintendent 
and  the  Cost  Department,"  Ed.  T.  A.  Coughlin,  Superintendent,  Coating 
Division,  Monarch  Paper  Co.,  Sixth  Semi-annual  Convention  of  the  Cost 
Assn.  of  the  Paper  Industry,  Oct.  6,  1921.  See  also  "Securing  Effective 
Work  from  Labor,"  Official  Publications,  National  Assn.  of  Cost  Account- 
ants, vol.  3,  No.  5,  Nov.  15,  1921;  "Managerial  Uses  of  Foundry  Costs," 
ibid.,  Dec.,  1920,  p.  12. 

14  "Fundamentals  of  a  Cost  System  for  Manufacturers,"  Federal  Trade 
Commission,  1916,  p.  3;  "Report  of  Cost  Research  Committee,"  Proceedings, 
Eleventh  Annual  Meeting,  National  Wholesale  Grocers'  Assn.,  1917,  p.  160; 
Address,  "The  Necessity  of  Cost  Finding,"  Oscar  Kwiat,  Photo-Engravers? 
Bulletin,  July,  1918,  p.  113;  Proceedings,  National  Assn.  of  Ice  Cream 
Manufacturers,  1920,  p.  90;  "Report  of  Committee  on  Production  Costs," 
National  Assn.  of  Cotton  Manufacturers,  Textile  World,  April  30,  1921, 
p.  109. 

is  Address,  "The  Necessity  of  Cost  Finding,"  Oscar  Kwiat,  Photo- 
Engravers'  Bulletin,  July,  1918,  p.  113. 


68  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

prices  to  customers  on  a  cost  plus  basis  so  attractive  in  secur- 
ing volume  orders  that  75  per  cent  of  his  business  which  has 
greatly  increased  under  this  policy  is  now  conducted  on  this 
basis.16 

Aids  in  Making  Tax  Returns. — Accurate  accounting  is  essen- 
tial in  making  tax  returns  to  the  Federal  government.  The 
only  way  to  make  a  safe  tax  return  is  to  make  an  accurate  re- 
turn. Accurate  returns  cannot  be  made  without  an  accurate  ac- 
counting system.17  A  failure  to  include  all  elements  of  cost 
will  result  in  the  payment  of  taxes  on  imaginary  profits  when 
in  fact  such  estimated  profits  may  be  in  part  an  actual  dissipa- 
tion of  assets.18 

But  so  far  as  association  participation  in  cost  accounting 
work  is  concerned,  to  justify  the  expense  of  such  work  there 
must  be  some  general  benefits  to  the  industry.  There  are  bene- 
fits of  a  very  substantial  character. 

Cost  Comparisons  Increase  Efficiency. — The  publication  of 
cost  data  by  an  association  making  possible  a  comparison  of  costs 
will  almost  certainly  result  in  increased  efficiency  of  the  in- 
dustry. The  Southern  Pine  Association,  The  American  Whole- 
sale Lumber  Association,  The  National  Wholesale  Grocers'  Asso- 
ciation and  many  other  organizations  compile  the  cost  fig- 
ures furnished  by  their  various  members  without  of  course  re- 
vealing the  names  of  the  members.  Each  member  is  thereby 
enabled  to  compare  each  and  every  one  of  his  costs  with  those 
of  his  competitors.  Often  startling  variations  are  revealed.19 
Such  data  enables  a  member  to  force  down  items  on  which  his 
costs  are  excessive  at  least  to  the  average  for  the  industry.20 

16  Address,  "The  Necessity  of  Proper  Accounting  Methods,"  Joseph 
Mack,  Photo-Engravers'  Bulletin,  July,  1918,  p.  97. 

IT  Address,  "The  Necessity  of  Proper  Accounting  Methods,"  L.  B. 
Folsom,  Photo-Engravers'  Bulletin,  July,  1918,  p.  101. 

is  Address,  "The  Necessity  of  Proper  Accounting  Methods,"  Joseph 
Mack,  Photo-Engravers'  Bulletin,  July,  1918,  p.  97. 

19  See  "Report  of  Committee  on  Accounting  and  Statistics,"  Southern 
Pine  Assn.,  Fourth  Annual  Proceedings,  1918,  p.  147;  Address,  Melvin  T. 
Copeland,  Director  Bureau  of  Business  Research,  Harvard  University,  Elev- 
enth Annual  Meeting  National  Wholesale  Grocers'  Assn.,  1917,  p.  85. 

20  "Report  of  Committee  on  Production  Costs,"  National  Assn.  of  Cot- 
ton Mfrs.,  Textile  World,  April  30,  1921,  p.  109. 


COST  AND  ACCOUNTING  METHODS  69 

The  general  tendency  of  such  comparisons  ought  certainly  to 
be  to  increase  the  efficiency  of  the  individual  members. 

Cost  Data  of  Value  in  Relations  with  Government. — Again  a 
uniform  system  of  accounting  may  be  of  value  to  the  industry  in 
its  relations  with  the  government.  The  administration  of  excess 
profits  and  income  taxes  involves  many  accounting  questions 
such  as  depreciation  and  depletion,  the  fixing  of  inventory  val- 
ues and  so  on.  In  fixing  rates  of  depreciation,  for  example,  the 
Internal  Revenue  Bureau  is  often  entirely  without  accurate  in- 
formation and  arbitrary  action  unfairly  burdening  the  industry 
may  result.  An  impartial,  accurate  study  of  such  a  question 
may  return  to  the  industry  value  far  in  excess  of  expenses  for 
such  work.  The  idea  of  such  a  study  has  been  approved  in 
principle  by  the  Bureau.21  The  price  fixing  powers  granted  our 
government  by  war  legislation  emphasized  the  lack  of  and  need 
for  accurate  costs  in  many  industries.  Some  industries  suf- 
fered from  the  prices  fixed  on  estimates  which  were  intended 
to  be  liberal.  Other  industries  able  to  offer  convincing  proof  as 
to  their  costs  of  production  conducted  their  business  without  in- 
jury. The  Southern  Pine  Association,  for  example,  at  the  out- 
break of  the  war  was  able  to  present  detailed  cost  figures  for 
the  industry  over  a  period  of  years  with  the  result  that  the 
industry  secured  an  advance  of  $1.50  per  M  over  the  tentative 
figure  fixed  by  the  War  Industries  Board  on  yellow  pine  lumber. 
This  advance  of  course  totaled  a  very  large  sum  on  the  sales  of 
the  members  during  the  period  this  price  was  in  effect.22  The 
experience  of  the  past  war  may  be  repeated  at  any  time.  Does 
not  a  reasonable  degree  of  foresight  demand  that  industries 
should  be  prepared  for  such  emergencies?  Moreover,  the  trend  s 
of  legislation  affecting  industries  dealing  with  our  natural  re- 
sources is  unquestionably  toward  stricter  supervision  and  even 
possible  price  regulation.  The  demand  for  such  legislation,  in- 
deed for  other  forms  of  regulatory  legislation,  often  arises  be- 
cause of  the  public  feeling  that  prices  are  excessive.  There  is 

21  See  letter,  Assistant  Commissioner  C.  P.  Smith,  Dec.  2,  1921,  Bull. 
14)    Fabricated    Production    Department,    Chamber    of    Commerce    of    the 
United  States. 

22  "Report  of  Committee  on  Accounting  and  Statistics,"  Fourth  Annual 
Proceedings,  Southern  Pine  Assn.,  1918,  p.  143. 


70  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

at  the  present  time  a  growing  determination  on  the  part  of  the 
public  and  of  the  government  to  determine  the  relative  responsi- 
bility of  manufacturer,  wholesaler,  and  retailer  for  inflated 
prices.  An  industry  without  comprehensive  cost  data  is  plac- 
ing itself  in  a  weak  and  defenseless  position  for  the  future.  An 
industry  with  a  well-organized  cost  system  on  the  contrary  is  in 
a  position  to  combat  unfair  legislation  or  investigation  with  con- 
vincing facts. 

Stabilization  of  Prices. — Finally,  a  system  of  cost  accounting 
generally  used  throughout  the  industry  will  beyond  doubt  tend 
to  stabilize  prices  at  a  reasonable  level.  The  laws  of  competi- 
tion do  not  demand  that  men  shall  sell  their  products  below 
cost.  On  the  contrary,  selling  below  cost  for  the  purpose  of  de- 
stroying competitors  is  a  competitive  method  which  has  been 
enjoined  by  action  of  the  government.23  As  business  men  in 
our  various  industries  learn  to  figure  properly  their  cost  there 
will  be  less  selling  below  cost  when  market  conditions  do  not 
compel  it.  But  on  the  other  hand  a  widespread  comparison  of 
costs  will  undoubtedly  reveal  waste  and  excessive  expenses  which 
if  eliminated  will  reduce  costs  and  tend  to  reduce  prices  to  the 
public.  The  scaling  up  of  prices  by  producers  selling  at  prices 
below  cost  and  the  scaling  down  of  the  prices  of  high  cost  pro- 
ducers, if  competition  is  in  no  way  restricted,  ought  to  establish 
a  more  stable  and  reasonable  market  price  relieving  manufac- 
turers, distributors  and  consumers  in  some  degree  from  the  many 
ills  of  a  fluctuating  market. 

Methods  of  Installation. — The  scope  of  a  cost  system  and 
the  method  of  its  development  depends  upon  the  finances  of  the 
association. 

Cost  Accounting  Committees. — The  work  may  be  merely  con- 
ducted by  a  cost  accounting  committee  which  will  secure  data 
by  questionnaire  or  other  means  for  comparative  purposes  on 
some  elements  of  cost  as  to  which  the  experience  of  the  industry 
has  found  there  is  great  room  for  improvement.  This  is  a 

23  United  States  vs  Great  Lakes  Towing  Co.,  Decrees  and  Judgments 
in  Federal  Anti-Trust  Cases,  p.  256 ;  United  States  vs  American  Thread  Co., 
ibid.,  p.  455;  United  States  vs  Corn  Products  Refining  Co.,  ibid.,  p.  445; 
United  States  vs  Bouser  &  Co.,  ibid.,  p.  591;  United  Sta\tes  vs  National 
Cash  Register  Co.,  ibid.,  p.  317. 


COST  AND  ACCOUNTING  METHOD 8  71 

method  employed  by  the  National  Wholesale  Druggists'  Asso- 
ciation, The  National  Warm  Air  Heating  &  Ventilating  Associa- 
tion, and  a  number  of  smaller  associations.24 

Cooperation  with  Educational  Institutions. — A  cost  system 
may  be  evolved  by  representatives  of  the  industry  in  cooperation 
with  some  university  or  college.  The  National  Whole- 
sale Grocers'  Association,  the  American  National  Retail  Jew- 
elers' Association,  and  the  National  Shoe  Retailers'  Association, 
working  with  the  Bureau  of  Business  Research  of  Harvard  Uni- 
versity, have  developed  cost  accounting  systems  for  their  mem- 
bers.25 The  University  has  made  a  careful  study  of  compara- 
tive costs  for  the  benefit  of  associations.  An  educational  bureau 
is  maintained  by  the  wholesalers'  association  to  aid  individual 
members  in  installing  the  system  and  to  issue  bulletins  and  other 
data  on  various  cost  accounting  problems  for  the  benefit  of  the 
membership.  The  National  Coffee  Roasters'  Association  are  en- 
gaged in  similar  work  with  the  School  of  Business  of  Columbia 
University.26 

Employment  of  Cost  Accountants. — A  third  method  is  to  em- 
ploy some  cost  accountant  of  high  standing  to  study  the  indus- 
try and  to  develop  a  system  for  general  use  in  the  industry. 
This  is  the  method  most  commonly  employed  and  the  expense 
involved  varies  with  the  ambition  of  the  particular  association. 
Some  associations  such  as  the  Southern  Pine  Association  and 
the  American  Wholesale  Lumber  Association  employ  an  ac- 
countant as  a  part  of  their  organization  whose  duty  it  is  to 
compile  for  comparative  purposes  the  cost  data  secured.  Such 
an  accountant  meeting  with  the  bookkeepers  or  accountants  of 
the  various  members  can  advise  them  as  to  the  purpose  and 
scope  of  the  system  and  simplify  the  method  of  installation. 
The  United  Typothetae  of  America  which  has  a  large  member- 
ship and  has  organized  a  gigantic  cost  accounting  campaign 

24  Warm  Air  and  Sheet  Metal  Journal,  July,  1918,  p.  51;  Oil,  Paint 
and  Drug  Reporter,  Oct.  4,  1921,  p.  27. 

25  "Report   of    Cost    Research    and    Statistical    Committee,"    Eleventh 
Annual  Meeting,  National  Wholesale  Grocers'  Assn.,  1917,  p.   160;    "Uni- 
form Accounting  Systems  Urged  for  Trade  Associations,"  Melvin  T.  Cope- 
land,  New  York  Evening  Post,  March  28,  1922. 

26  The  Spice  Mill,  Nov.,  1921,  p.  1213. 


72  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

financed  with  the  aid  of  some  twenty-nine  trade  associations  in 
industries  closely  related  to  printing,  maintains  an  organization 
of  accountants  whose  services  are  available  to  each  member  to 
aid  in  the  installation  of  the  system  in  his  plant.27  This  of 
course  involves  much  greater  expense  to  an  association.  The 
Laundry  Owners'  National  Association  has  made  arrangements 
with  various  firms  of  accountants  in  different  parts  of  the  coun- 
try to  install  the  uniform  system  for  its  members  when  their 
services  are  desired.28 

Subsidiary  Cost  Associations. — The  American  Pulp  and 
Paper  Association  organized  in  1917  a  subsidiary  association, 
known  as  the  Cost  Association  of  the  Paper  Industry,  whose 
sole  efforts  are  devoted  to  the  study  of  cost  accounting  problems 
and  the  coordination  of  their  cost  system  with  the  steady  im- 
provement in  technical  and  factory  methods.  This  association 
at  one  time  had  a  special  committee  consisting  of  cost  experts 
representing  various  branches  of  the  industry,  its  members  be- 
ing subject  to  call  by  any  member  of  the  association  desiring 
to  install  a  cost  system  in  his  plant.  This  plan,  however,  has 
been  discontinued,  but  the  members  of  the  association  using 
cost  systems  permit  any  member  planning  to  install  such  a  sys- 
tem to  visit  their  plant  and  examine  their  records  in  actual  use, 
a  practice  which  has  been  found  of  great  value.29  The  refrac- 
tories manufacturers  have  likewise  organized  a  body  known  as 
the  Eefractories  Accountants'  Institute  which  is  comprised  of 
accountants  employed  by  members  of  the  parent  association.30 

Closely  akin  to  the  development  of  uniform  cost  systems  is 
the  education  of  members  into  better  methods  of  bookkeeping. 
In  many  lines  of  business,  particularly  in  the  retail  branches, 
work  of  this  kind  is  of  the  greatest  value.  The  Research  Bureau 
of  the  American  National  Retail  Jewelers'  Association  has  pre- 
pared a  book  of  valuable  forms,  such  as  maturity  sheets  enabling 
the  retailer  to  check  his  indebtedness  so  that  he  may  avoid 

27  TypothetcB  Bulletin,  September,  1918,  pp.  2,  9,  25. 

28  Proceedings,  Thirty-fifth  Annual  Convention,  Laundry  Owners*  Natl. 
Assn.,  1918,  p.  195. 

29  Letter,  Thos.  J.  Burke,  Secretary-Treasurer,  Cost  Assn.  of  the  Paper 
Industry,  Oct.  29,  1921. 

so  Brick  and  Clay  Record,  Nov.  15,  1921,  p.  736. 


COST  AND  ACCOUNTING  METHODS  73 

overbuying,  forfeiture  of  discounts,  injury  to  credit  rating; 
order  forms,  clearly  stating  terms  and  conditions ;  forms  of  regis- 
tration of  stock,  inventory  forms  and  so  on.31  The  use  of 
such  forms  must  induce  better  business  methods.  The 
photo  engravers  in  1917  also  issued  a  pamphlet  prepared  by  a 
firm  of  certified  public  accountants  outlining  a  simple  account- 
ing and  bookkeeping  system  for  the  members  of  that  associa- 
tion.32 

It  may  be  possible  for  an  association  to  secure  valuable  in- 
formation and  suggestions  as  to  methods  from  accountants'  or- 
ganizations such  as  the  American  Institute  of  Accountants  and 
the  National  Association  of  Cost  Accountants.  One  of  the  great 
problems  in  securing  a  general  adoption  of  a  uniform  system  is 
the  difficulty  of  securing  the  cooperation  of  accountants  em- 
ployed by  members  or  having  more  or  less  direct  relations  with 
them. 

Suggestions.33 — The  successes  of  associations  which  have 
adopted  uniform  systems  of  accounting  have  demonstrated  some 
facts  which  should  be  emphasized. 

First,  the  members  of  the  association  should  be  "sold"  on 
the  value  of  uniform  cost  accounting  to  the  industry.  This  in- 
volves education  as  to  its  benefits  with  proof  from  the  experi- 
ence of  other  industries. 

Second,  a  cost  accounting  committee  composed  of  members 
possessing  good  cost  systems  should  be  appointed.  A  committee 
of  men  experienced  in  cost  accounting  can  make  a  preliminary 
survey  of  accounting  conditions  in  the  industry.  By  reason  of 
their  acquaintance  with  the  particular  problems  of  the  industry 
such  a  committee  can  be  of  invaluable  assistance  in  framing  the 
system  to  meet  the  needs  of  the  industry. 

Third,  a  cost  accountant  or  a  firm  of  cost  accountants  of  un- 
questioned ability  should  be  employed  to  study  the  industry  and 
develop  a  practical  system  in  cooperation  with  the  committee. 


si  "Practical   Forms,"  compiled  by   Research   Bureau,   American   Na- 
tional Retail  Jewelers'  Assn.,  1919. 

32  "General  Accounting  Policy  and  Bookkeeping  Systems,"  prepared  by 
Robt.  J.  Mclntosh  &  Co. 

33  For  other  suggestions  of  value,  see  Bull.  13,  Fabricated  Production 
Department,  Chamber  of  Commerce  of  the  United  States. 


74  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

They  should  be  given  ample  time  to  make  a  real  study  of  the 
industry. 

Fourth,  the  system  developed  should  be  flexible  so  that  it 
may  be  easily  used  by  manufacturers  whether  large  or  small.34 
In  this  way  comparable  data  may  be  secured  from  all  the 
members. 

Fifth,  facilities  should  be  provided  in  the  office  of  the  asso- 
ciation for  the  compilation  of  cost  data  for  comparative  pur- 
poses, the  cost  figures  of  course  being  circulated  among  the 
members  without  any  recommendation  whatsoever  from  which 
any  agreement  to  take  united  action  on  price  or  uniformity  of 
costs  could  be  implied. 

Legality. — Association  action  in  formulating  a  uniform 
system  of  cost  accounting  based  upon  recognized  principles  of 
cost  accounting  and  designed  to  reveal  individual  cost  is 
beyond  any  doubt  legal ;  for  there  is  in  such  action  no  restriction 
of  competition  whatsoever.35 

But  the  instant  an  association  takes  action  to  establish  uni- 
form costs  or  uniform  elements  of  cost,  a  probable  violation  of 
the  law  is  effected. 

The  Attorney  General  of  the  United  States  states  the  posi- 

s*  The  paint  manufacturers,  for  example,  have  a  general  system  of 
three  interlocking  plans.  The  first,  the  basis  of  all  three  plans,  by  reason 
of  its  simplicity  can  be  successfully  employed  by  the  smallest  member. 
The  second,  or  intermediate  system  is  an  extension  of  the  basic  plan  bring- 
ing out  in  greater  detail  the  subdivision  of  elements  of  costs.  The  third 
is  a  comprehensive  system  for  the  larger  companies  further  subdividing 
cost  factors  and  giving  a  more  complete  control.  "Report  of  Cost  Account- 
ing Committee,"  Paint  Manufacturers'  Assn.  of  the  United  States, 
Nov.  18,  1920.  The  Laundry  Owners'  Natl.  Assn.  has  a  somewhat  similar 
system. 

35  Letter,  Nelson  B.  Gaskill,  Acting  Chairman,  Federal  Trade  Commis- 
sion, Aug.  2,  1921;  see  Bull.  11,  Fabricated  Production  Department, 
Chamber  of  Commerce  of  the  United  States. 

While  the  Federal  Trade  Commission,  has  no  lawful  authority  to 
furnish  advance  opinions  as  to  the  legality  or  illegality  of  any  acts  under 
the  Anti-Trust  Laws  and  such  opinion  if  furnished  cannot  therefore  be  con- 
sidered as  final  so  far  as  the  possibility  of  subsequent  legal  action  is  con- 
cerned, the  opinion  of  the  Commission  as  a  body  aiding  in  the  enforcement 
of  the  Anti-Trust  Acts  is  persuasive.  In  recent  correspondence  with  the 
Chamber  of  Commerce  of  the  United  States,  the  Commission  expressed 


COST  AND  ACCOUNTING  METHODS  75 

tion  of  the  Department  of  Justice  toward  such,  action  in  the 
following  language: 

"There  is  no  apparent  objection  to  a  standard  system  of  cost  ac- 
counting but  I  think  associations  should  be  warned  to  guard  against 
uniform  cost  as  to  any  item  of  expense.  ...  It  is  as  clearly  a  violation 
of  the  law  to  agree  upon  the  cost  of  an  item  that  constitutes  a  substan- 
tial part  of  the  total  cost  price  when  its  cost  actually  varies,  as  to  agree 
upon  the  sales  price,  because  the  sales  price  is  substantially  affected  by 
such  agreement.  It  has  been  ascertained  that  the  members  of  one 
association  go  so  far  as  to  fix  a  uniform  cost  price,  leaving  to  each 
member  to  determine  what  percent  profit  he  will  add,  thus  eliminating 
entirely  competition  in  so  far  as  affected  by  the  cost  of  production."  86 

Uniform  cost  accounting  merely  standardizes  through  recog- 
nized and  proper  accounting  principles  the  methods  of  all  mem- 
bers for  determining  their  actual  individual  costs.  Uniform 
costs  on  the  other  hand  standardize  or  fix  the  largest  element 
in  the  make  up  of  the  price  of  a  commodity  and  their  almost 
inevitable  effect  is  to  enhance  the  general  level  of  price.  Com- 
bined action  for  the  purpose  or  with  the  effect  of  increasing 
prices  is  unlawful.  Activities  of  associations  directed  toward 
the  fixing  of  uniform  costs  have  been  rather  common  and  vary 
from  a  fixing  of  a  total  cost  down  to  the  fixing  of  possibly  some 
element  of  cost.  Sometimes  they  have  had  a  legitimate  pur- 
pose ;  more  often  their  sole  purpose  has  been  to  increase  prices. 
One  association  for  example  has  standardized  the  cost  of  its 
members  in  this  way.  Labor  costs  are  practically  uniform  by 
reason  of  the  general  application  of  the  union  scale  of  wage. 
Indirect  or  non-productive  labor  is  accounted  for  by  merely 
doubling  the  direct  labor  cost.  Figures  as  to  costs  of  materials 

itself  with  reference  to  the  legality  of  the  use  of  uniform  methods  of  cost 
accounting  by  trade  associations  in  the  following  language : 

".  .  .  It  may  be  said  that  for  a  trade  association  to  set  up  and  induce 
the  use  by  its  members  of  a  scientific  and  accurate  plan  of  cost  accounting 
is  not  only  legal  but  highly  beneficial  to  the  individual  members  of  the 
association.  The  use  of  this  legal  and  highly  beneficial  information  by 
each  individual  in  establishing  his  own  production  cost  and  determining 
his  own  margin  is  entirely  proper." 

36  Letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover, 
Secretary  of  Commerce,  Feb.  8,  1922,  Appendix  J. 


76  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

in  a  number  of  establishments  are  secured  throughout  the  coun- 
try and  the  average  costs  of  materials  determined.  The  amount 
of  non-productive  time  is  estimated  and  a  fixed  percentage  es- 
tablished as  the  average  for  the  industry.  The  cost  of  the  ar- 
ticle is  then  fixed  by  the  individual  member  by  adding  to  the 
average  material  cost  the  doubled  direct  labor  cost  plus  the  arbi- 
trarily fixed  percentage  for  non-productive  time  and  this  is  sup- 
posedly his  cost.  Such  a  system  does  not  in  any  way  represent 
the  individual's  actual  cost  and  is  obviously  merely  a  method 
for  increasing  and  standardizing  the  apparent  cost  with  the 
natural  result  of  increasing  the  general  price  level.  This  method 
as  stated  by  its  sponsors  produces  ''surprising  results"!  With 
the  data  furnished  by  the  association,  the  determination  of  the 
members'  cost  is  merely  a  computation  from  printed  tables  fur- 
nished by  the  association  which  can  be  made  by  any  clerk  and 
may  bear  little  relation  to  his  actual  cost.  Other  associations 
have  so-called  standard  cost  schedules,  uniform  estimators  and 
so  on,  which  are  clearly  intended  to  increase  if  not  fix  prices 
rather  than  to  enable  the  individual  to  find  his  costs  accu- 
rately. 

Other  more  indirect  methods  of  price  inflation  are  some- 
times evolved  in  the  fixing  of  single  elements  of  cost.  An  agree- 
ment for  example  to  figure  materials  at  present  market  value 
rather  than  at  actual  cost  when  the  market  has  increased  will 
tend  to  restrict  price  competition.  In  the  lumber  industry 
where  stumpage  is  a  very  large  element  of  cost,  were  the  large 
lumber  manufacturers  to  figure  their  stumpage  cost  at  the  pres- 
ent market  value  rather  than  at  the  purchase  price  of  years  ago, 
plus  carrying  charges,  a  much  higher  level  of  prices  would 
result.37  In  a  similar  way  an  industry  instead  of  establishing 
fair,  accurate  rates  of  depreciation  on  the  various  types  of 
plants,  machinery  and  so  on,  can  fix  exorbitant  allowances  for 
the  express  purpose  of  inflating  prices  and  evading  taxes.  The 
same  can  be  done  with  such  items  as  obsolescence  and  depletion, 
in  fact  any  items  of  cost.  Association  action  to  educate  its  mem- 

37  In  the  recent  proceedings  brought  against  the  Southern  Pine  Assn., 
the  government  alleges  that  stumpage  costs  were  inflated  by  agreement  as 
a  device  to  enhance  prices.  Petition,  United  States  vs  Southern  Pine  Assn. 
et  al.,  February,  1921. 


COST  AND  ACCOUNTING  METHODS  77 

bers  to  pro  rate  overhead,  designed  not  to  determine  actual 
cost  but  rather  to  establish  a  uniform  method  of  fixing  indi- 
vidual prices  is  of  doubtful  legality. 

The  government  has  also  challenged  the  legality  of  the  al- 
leged action  of  the  Southern  Pine  Manufacturers  in  agreeing 
that  the  "marginal  cost"  as  determined  by  the  cost  statements 
of  the  members  should  be  used  as  a  minimum  basis  of  selling 
prices  of  all  the  companies.38  This  so-called  "marginal  cost" 
consisted  of  the  highest  cost  of  production  comprised  by  the 
listed  figures  of  the  members  showing  a  production  sufficient  to 
meet  the  current  volume  of  shipments  and  orders  as  shown 
by  the  reports  of  the  members  to  the  association.  An  associa- 
tion should  avoid  any  action,  persuasive  or  coercive,  having  to 
do  with  the  price  policy  of  its  members.  Averages  of  costs  may 
often  also  be  used  improperly.  Their  use  is  of  course  valuable 
and  proper  for  the  purpose  of  enabling  manufacturers  to  make 
comparison  with  their  individual  costs  and  to  correct  abnormal 
variances  above  the  average ;  but  they  can  readily  become  a  modi- 
fied form  of  price  list  especially  where  the  margin  of  profit  in 
the  trade  is  more  or  less  fixed  by  custom  or  agreement.39  The 

38  Petition,   United  States  vs  Southern  Pine  Assn.  et  al.,   February, 
1921. 

39  That  the  government  views  the  use  of  cost  averages  with  suspicion 
is  evidenced  by  the  letter  of  the  acting  chairman  of  the  Federal  Trade  Com- 
mission to  the  Chamber  of  Commerce  of  the  United  States  under  date  of 
Oct.  2,  1921,  in  which  appears  the  following  language: 

"Stated  in  another  way,  the  conception  of  the  Commission  is  that  the 
efforts  of  a  trade  association  to  educate  the  individual  member  in  the  appli- 
cation of  sound  principles  of  cost  accounting  in  his  individual  business,  are 
proper.  But  that  any  subsequent  effort  of  the  association  to.  reduce  the 
individual  costs  to  an  average  or  uniform  cost  basis  and  to  procure  the 
use  of  the  group  standard  as  a  basis  of  price  making  by  each  of  the  in- 
dividuals in  the  group,  is  improper.  The  individual  must  fix  his  own  cost 
and  his  own  margin.  The  group  may  not  attempt  to  substitute  a  group 
average  or  standard  either  of  cost  or  margin  for  the  individual's  figures 
without  being  in  peril  of  becoming  an  unlawful  combination. 

"Applying  this  statement  to  your  interpretation  of  our  letter  of  the 
25th,  it  may  be  said  that  for  a  trade  association  to  set  up  and  induce  the 
use  by  its  members  of  a  scientific  and  accurate  plan  of  cost  accounting  is 
not  only  legal  but  highly  beneficial  to  the  individual  members  of  the  asso- 
ciation. The  use  of  this  legal  and  highly  beneficial  information  by  each 


78  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

instant  the  cost  system  is  abused,  the  instant  it  ceases  to  reflect 
actual  individual  cost,  it  in  spirit  violates  the  law  and  may 
easily  actually  violate  it.  That  there  is  need  for  caution  in  the 
use  of  a  cost  accounting  system  is  shown  by  the  fact  that  a  civil 
proceeding  has  been  brought  and  a  consent  decree  entered 
against  the  members  of  one  association  because  of  the  use  of 
arbitrary  and  fictitious  schedules  of  cost.40  In  several  other 
proceedings  the  government  alleges  uniform  cost  accounting  sys- 
tems have  been  employed  as  part  of  a  general  scheme  to  restrain 
trade.41  A  criminal  proceeding  is  pending  against  another,  one 
of  the  charges  in  the  indictment  being  the  alleged  improper  use 
of  a  uniform  cost  accounting  system.42 

If  the  association  goes  beyond  general  educational  work  de- 
signed to  secure  the  general  installation  of  a  cost  system  in  the 
industry  and  gathers,  compiles  and  publishes  cost  data  from  its 
members,  the  law  can  be  very  easily  violated.  A  study  of  some 
association  records  show  beyond  doubt  that  the  analysis  of  such 
data  by  the  cost  accountant  of  the  association  and  the  study  and 
discussion  of  the  data  by  the  members  in  meetings  has  resulted 
in  tacit  agreements  to  increase  prices  materially.  Even  the 
published  proceedings  of  some  associations  frankly  state  that 
very  heavy  increases  in  prices  have  been  thus  brought  about 
and  urge  this  benefit  upon  the  membership  as  a  justification  of 
the  cost  accounting  activities.  It  is  needless  to  point  out  the  il- 

individual  in  establishing  his  own  production  cost  and  determining  his  own 
margin,  is  entirely  proper.  If  thereafter  the  association  attempts  to  in- 
duce its  members  to  disregard  their  own  varying  figures  and  use  a  common 
average  or  uniform  figure  of  cost  or  margin  or  both,  it  has  departed  from 
its  proper  position  of  instructor  and  may  easily  take  on  the  appearance  of 
a  price  fixing  combination  in  restraint  of  trade  or  in  suppression  of  com- 
petition." Bull.  11,  Fabricated  Production  Dept.,  Chamber  of  Commerce 
of  the  United  States. 

40  United  States  vs  Kluge  et  al.   ( Woven  Label  Mf rs'.  Assn. ) ,  Decrees 
and  Judgments  in  Federal  Anti-Trust  Cases,  p.  633. 

41  See  petition,  United  States  vs  Cement  Mfrs'.  Protective  Assn.  et  al., 
June,  1921,  p.  16;  petition,  United  States  vs  Southern  Pine  Assn.,  Febru- 
ary,  1921,  p.  13;  petition,   United  States  vs  Midwest  Cement  Credit  and 
Statistical  Bureau  et  al.,  October,  1921,  p.  27. 

42  Indictment,  United  States  vs  Jones  et  al.    (National  Coal  Assn.), 
Feb.  25,  1921,  pp.  21,  30,  39,  48,  51. 


COST  AND  ACCOUNTING  METHODS  79 

legality  of  such  acts.  Any  association  engaging  in  such  action 
must  know  it  is  unlawful.  If  cost  data  is  compiled  and  pub- 
lished by  an  association  for  helpful  comparative  purposes  to 
enable  members  to  increase  their  efficiency  rather  than  to  in- 
crease prices,  such  action  is  lawful.  But  only  the  naked  cost 
data  can  be  compiled.  There  must  be  no  meetings  of  members 
for  the  joint  consideration  of  this  data;  there  must  be  no 
analysis  by  an  expert  cost  accountant  with  suggestions  of  the 
adoption  of  cost  accounting  methods  designed  to  increase  the 
general  level  of  price;  there  must  be  no  interchange  of  views 
between  the  members  which  have  in  them  any  suggestions  or 
recommendations  intended  to  bring  about  an  inflation  of  prices 
through  increased  estimates  of  costs;  in  fact  there  must  be  no 
cooperative  action  looking  toward  any  limitation  of  price  com- 
petition in  any  way.43 

43  This  statement  is  based  on  the  premise  that  the  courts  will  adopt 
the  same  conclusion  as  to  association  distribution  of  cost  data  that  they 
have  adopted  with  reference  to  circulation  of  prices.  See  American  Column 
&  Lumber  Co.  et  al.  (American  Hardwood  Mfrs'.  Assn.)  vs  United  States, 
42  Sup.  Ct.  114  (1921). 


CHAPTER  VI 
STANDARDIZATION 

THE  steady  development  of  industries  and  the  social  agencies 
which  serve  them  are  constantly  creating  new  conditions  requir- 
ing readjustment.  Improved  methods  of  transportation,  low- 
ered costs  resulting  from  more  efficient  manufacturing  processes, 
bettered  methods  of  distribution,  and  so  on,  have  brought  com- 
modities originally  produced  in  response  to  peculiar  demands 
into  many  new  markets.  While  competition  has  been  thus 
greatly  increased  through  a  vast  enlargement  of  the  field  of 
distribution  of  every  seller,  the  variety  of  commodities  offered 
to  the  consumer  has  been  multiplied  in  every  market.  The 
great  number  of  non-standardized  and  sometimes  nondescript 
articles  offered  for  sale  directly  in  competition  with  each  other 
has  created  a  condition  of  great  confusion  and  economic  waste. 
The  manufacturer  has  felt  himself  compelled  to  enlarge  his  line 
to  meet  the  competition  of  similar  articles  delivered  to  his  terri- 
tory and  has  been  burdened  with  heavy  inventories,  increased 
costs,  and  more  difficult  conditions,  both  in  production  and  dis- 
tribution. The  dealer  has  been  compelled  to  carry  larger  stocks, 
assume  larger  risks  and  conduct  his  business  at  a  greater  ex- 
pense. The  consuming  public  confronted  with  a  confusion  of 
trade  terms  for  the  same  commodity  and  a  lack  of  anything  ap- 
proaching uniformity  in  the  product  offered  for  sale,  has  been 
an  easy  victim  of  fraud  and  deception,  and  has  not  only  re- 
ceived inferior  service,  but  paid  a  high  price  for  it.  The 
lack  even  of  a  common  trade  terminology  has  hampered  trade 
and  scientific  advancement.  Such  conditions  are  obviously 
wrong.  But  no  individual  manufacturer  can  overcome  them. 
Either  the  industry  itself  or  the  law  must  afford  the  relief.  If 
the  evil  exists,  and  every  one  recognizes  its  existence,  should 
not  every  industry  itself  at  least  attempt  to  correct  it  in  a  prac- 
tical way,  rather  than  wait  for  legislation  which  may  stifle 

80 


STANDARDIZATION  81 

progress  and  work  against  the  best  interests  of  the  industry  ?  A 
number  of  trade  associations  have  vigorously  attacked  this  sit- 
uation, attempting  to  work  out  /^easonable^  standards,  around 
which  the  entire  industry  may  center  its  efforts  in  order  that  the 
conduct  of  business  may  be  simplified  and  needless  waste 
avoided.  There  are  few  industries  which  cannot  secure  large 
returns  from  a  carefully  considered  plan  of  standardization  in 
some  of  its  forms. 

Classification  of  Standards. — Standardization  takes  many 
forms.  In  each  industry  the  problems  may  be  different,  vary- 
ing with  the  nature  of  the  commodity,  the  character  of  the 
business,  and  other  factors.  In  most  industries  there  will  be 
found  a  need  for  united  action  in  standardization  along  one  or 
more  of  the  following  lines:  (a)  Nomenclature,  (b)  Quantity, 
(c)  Quality,  (d)  Performance,  (e)  Practice,  (f)  Types,  (g) 
Dimensions. 

Nomenclature. — A  standardization  of  the  exact  meaning  of 
trade  and  technical  terms,  words  and  phrases  is  of  great  im- 
portance. It  makes  possible  the  carrying  on  of  trade  with  a 
minimum  of  misunderstanding;  it  makes  it  easier  to  develop 
a  body  of  useful  trade  and  technical  literature;  and  it  enables 
young  men  entering  business  to  acquire  an  understanding  of 
the  business  more  rapidly,  with  a  consequent  increase  in  their 
value  to  their  employers.1  Some  associations  determined  to 
eliminate  the  ill  will,  errors  and  expense  resulting  from  lack  of 
standard  terminology  on  which  the  minds  of  traders  can  meet 
in  all  their  transactions,  have  acted  to  remedy  such  conditions. 
Four  associations  have  jointly  worked  out  standard  definitions 
of  trade  terms  in  use  in  the  fruit  and  vegetable  industry.2  The 
American  Association  of  Nurserymen  and  the  Society  of  Ameri- 
can Florists  have  a  joint  committee  which,  working  with  the 
Bureau  of  Plant  Industry  of  the  United  States  Department  of 

1  Statement,     H.     F.     Stratton,     Electric     Controller     &     Mfg.     Co. 
Proceedings,    Assn.    of    Iron    and    Steel    Electrical    Engineers,    January, 
1921,  p.  12. 

2  "Standard  Rules  and  Definitions  of  Trade  Terms  for  the  Fruit  and 
Vegetable   Industry,"  approved  by  National   League  of   Commission  Mer- 
chants of  U.  S.,  International  Apple  Shippers'  Assn.,  Western  Fruit  Job- 
bers' Assn.,  American  Fruit  and  Vegetable  Assn. 


82  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Agriculture,  in  order  to  make  buying  easy  has  developed  a  code 
of  scientific  names  and  is  developing  a  code  of  standard  com- 
mon names  to  replace  the  two  to  a  dozen  names  now  often  ap- 
plied to  a  single  shrub  or  plant.3  The  drug  manufacturers,  for 
much  the  same  reason,  are  working  for  a  standard  nomencla- 
ture on  drugs.4  The  Society  of  Automotive  Engineers  has, 
within  the  past  few  years,  worked  out  definitions  and  nomen- 
clature dealing  with  storage  batteries,  in  cooperation  with 
the  United  States  Bureau  of  Standards.5  The  American  Con- 
crete Institute  has  also  been  working  several  years  to  limit  the 
technical  meaning  of  words  in  order  to  avoid  conflicting 
usage  and  errors  in  specifications.6  There  are  many  industries 
which  have  done  nothing  in  developing  a  precise  business 
vocabulary  and  it  is  usually  in  these  industries  that  one 
finds  distrust  and  suspicion  rampant.  When,  for  example,  in 
the  lumber  industry  we  find  one  product,  long  leaf  pine,  known 
by  at  least  twenty-nine  local  or  generally  used  names,  there  is 
surely  need  for  a  standardization  of  terms.7 

Standardization  of  Quantity. — Technical  and  scientific  in  its 
nature,  but  of  great  value  to  industries,  is  the  fixation  of  stand- 
ards of  quantity.  This  involves  the  fixing  of  units  of  measure- 
ment, which  is  basic  and  essential  to  the  progress  of  the  indus- 
try. We  naturally  assume  that  the  experience  of  the  centuries 
has  long  since  solved  such  questions.  It  is  somewhat  of  a  sur- 
prise to  know  there  are  23  different  bushels  in  use  in  the  United 
States.8  The  rapid  development  of  new  industries  also  demands 
the  creation  of  new  standards.  The  Bureau  of  Standards  is 
steadily  evolving  working  standards  of  wave  lengths,  candle 
power,  color,  radio-activity  and  what  not,  in  cooperation  with 

s  "Report  of  Committee  on  Nomenclature,"  Proceedings,  American 
Assn.  of  Nurserymen,  1918,  p.  74. 

*  "Report  of  Committee  on  Standardization,"  Seventh  Annual  Meeting, 
American  Drug  Mfrs'.  Assn.,  p.  85. 

s  "Annual  Report,"  Bureau  of  Standards,  1920,  p.  87. 

e  Letter,  Harvey  Whipple,  Secretary,  Dec.  6,  1921. 

7  "The  Present  Lumber  Standardization  Movement,"  David  G.  White, 
Forest  Products  Laboratory,  Southern  Lumberman,  Dec.  17,  1921,  p.  114. 

s  "Industrial  Standardization,"  C.  A.  Adams,  Annals  of  the  American 
Academy,  p.  290,  vol.  82;  "The  Work  of  the  Bureau  of  Standards,"  P.  G. 
Agnew,  ibid.,  pp.  280,  282. 


STANDARDIZATION  83 

the  various  technical  organizations  and  associations  and  the  na- 
tional laboratories  of  other  countries.  Color  standards  alone  are 
of  real  interest  to  railroad  officials,  oil  ripeners,  paint  and  varn- 
ish manufacturers,  illuminating  engineers,  dealers  in  dyes, 
lithographers,  and  many  other  interests. 

Standardization  of  Quality. — The  fixing  of  standards  of 
quality  is  usually  effected  through  the  adoption  of  standard 
specifications,  either  by  the  buyer  or  seller.  In  some  instances, 
because  of  the  nature  of  the  commodity,  the  adoption  of  stand- 
ard tests  is  also  required.  Sometimes  the  test  is  the  standard. 
Many  of  the  lumber  associations  have  adopted  standard  specifi- 
cations, fixing  the  quality  of  the  various  grades  of  lumber..  Ap- 
proximately 90  per  cent  of  the  yellow  pine  lumber  of  the  states 
of  Texas,  Arkansas,  Missouri,  Louisiana,  Mississippi,  Alabama, 
Georgia  and  Florida  is  graded  and  classified  according  to  the 
rules  and  specifications  of  the  Southern  Pine  Association.9  In 
fact  most  of  the  lumber  sold  in  the  United  States  is  sold  under 
association  grades  and  specifications.  The  Clay  Products  Associ- 
ation found  it  necessary  to  standardize  their  products  because 
products  of  an  inferior  quality  reacted  severely  against  the 
industry  in  its  competition  with  brick  manufacturers,  iron  manu- 
facturers and  others.10  Standard  specifications  and  tests  for 
cement  have  been  adopted  after  several  years'  work  by  the 
American  Society  for  Testing  Materials,  in  cooperation  with  a 
special  committee  from  the  government  departments  and  the 
American  Society  of  Civil  Engineers.  Those  specifications 
have  been  widely  circulated  by  the  Portand  Cement  Association. 
The  cotton  seed  crushers  have  carefully  worked  out  uniform 
grades  and  tests  to  place  their  buying  on  an  efficient  basis.11 
The  silk  manufacturers,  working  with  the  technical  experts  of 
China  and  Japan,  have  worked  out  some  specifications  for  raw 
silk,  and  are  gradually  evolving  an  international  standard.12 

» "Standard  Specifications  for  Grading  of  Southern  Yellow  Pine," 
Copyright,  1920,  Southern  Pine  Assn. 

10  Printers'  Ink,  July  22,  1920,  p.  116. 

11  "Rules  Governing  Transactions  in  Cotton  Seed  and  Its  Products," 
Interstate  Cotton  Seed  Crushers'  Assn.,  Thirty-third  Annual  Session,  1919. 

12  "Forty-sixth  Annual  Report,"  Silk  Assn.  of  America,  1918,  pp.  21, 
81  and  83. 


84  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

The  grades  of  cotton,  through  the  activities  of  this  government, 
foreign  governments,  and  the  various  textile  associations,  have 
been  standardized  on  an  international  basis. 

Standardization  of  Performance. — It  may  be  desirable  to  as- 
certain averages,  or  otherwise  determine  fair  standards  of  opera- 
tion for  machines  and  other  devices  as  to  output,  speed  and  so 
on.  Such  an  activity  can  very  easily  be  employed  to  accomplish 
an  unlawful  restriction  of  production,  but  on  the  other  hand  can 
be  of  great  value  to  an  industry  if  properly  employed.  The 
Container  Club,  for  example,  several  years  ago  began  the  com- 
pilation of  statistics  on  machine  output  per  hour.  The  reports 
showing  the  average  for  the  industry  revealed  to  some  manufac- 
turers that  their  performance  was  far  below  the  average.  The 
mere  ascertainment  of  a  fair  standard,  even  though  not  fixed 
or  adopted  by  the  association,  enabled  such  manufacturers  to 
greatly  improve  conditions  in  their  factories.  The  silk  manu- 
facturers have  endeavored,  by  investigation  of  machinery  opera- 
tion and  production,  to  ascertain  the  best  equipment  for  each 
class  of  goods  and  the  proper  standards  of  machine  speed  at 
which  each  class  of  material  can  be  produced.13  Activities  along 
this  line  involve  the  possibility  of  labor  troubles,  for  a  steady 
raising  of  the  general  average  of  production  means  a  burdening 
and  speeding  up  of  labor.  But  on  the  other  hand  fairly  de- 
termined standards  may  serve  as  a  sound  foundation  on  which 
employer  and  employee  can  work  out  a  proper  wage  scale.14 

Standardization  of  Practice. — By  standardization  of  practice 
is  meant  the  fixing  of  standard  uniform  methods  of  construc- 
tion, installation  and  operation.15  Probably  the  most  important 
form  of  standardization  of  this  nature  is  in  building  construc- 
tion. The  innumerable  and  varying  building  codes  of  our  vari- 
ous cities,  often  enacted  as  a  result  of  competitive  jealousies 
between  industries,  have  produced  a  condition  of  tremendous 
economic  waste  and  senseless  restrictions  with  a  burdensome 
ultimate  cost  to  the  public.  Wood,  steel,  concrete,  brick,  and 

13  "Forty-sixth  Annual  Meeting,"  of  the  Silk  Assn.  of  America,  p.  14. 

14  "Waste   in  Industry,"  Report  of  Federated  American   Engineering 
Societies,  p.  76. 

is  "Industrial  Standardization,"  C.  A.  Adams,  Annals  of  the  American 
Academy,  vol.  82,  p.  290. 


STANDARDIZATION  85 

hollow  tile,  are  all  commodities  vigorously  in  competition  with 
each  other,  and  the  tendency  is  for  manufacturers  of  these 
products  to  utilize  local  political  influences  at  the  expense  of 
each  other.  Ignorance,  too,  of  qualities  is  often  the  cause  of 
unnecessarily  strict  municipal  regulations.  Some  industries 
have,  in  a  measure,  been  able  to  avoid  some  of  these  difficulties. 
The  American  Concrete  Institute  by  the  general  adoption  of  a 
number  of  standard  specifications,  has  greatly  simplified  engi- 
neering and  construction  in  the  concrete  field.16  Its  specifica- 
tions for  concrete  roads,  streets  and  alleys  have  been  circulated 
by  the  Portland  Cement  Association.  The  tile  manufacturers 
have  published  a  pamphlet  of  specifications  and  contract  forms 
standardizing  the  details  of  procedure,  with  reference  to  any 
kind  of  tile  installation,  with  practically  every  type  of  construc- 
tion.17 The  Department  of  Commerce  in  cooperation  with  the 
National  Federation  of  Construction  Industries  and  other  build- 
ing associations,  is  starting  a  great  movement  for  the  standardi- 
zation of  building  codes  and  methods  of  construction  which  to 
the  extent  it  is  successful  will,  beyond  doubt,  greatly  reduce 
waste,  lessen  costs,  stimulate  building,  and  in  every  way  re- 
dound to  the  public  interest. 

Standardization  of  Types,  Sizes  and  Varieties. — One  of  the 
most  practical  fields  for  standardization  is  in  the  establishment 
of  definite  sizes  or  varieties  of  the  product.  The  enforced  stand- 
ardization of  many  products  required  by  war  agencies  with  the 
admitted  economic  benefits  to  all  factors  in  an  industry  result- 
ing from  the  fixing  of  standards,  has  aroused  great  interest  in 
this  work  during  the  past  few  years.  The  achievements  of 
some  industries  have  been  substantial.  The  farm  vehicle  manu- 
facturers by  a  comprehensive  standardization  program  applied 
to  bodies,  wheels,  treads,  gears  and  all  parts  of  a  wagon,  were 
enabled  to  reduce  the  number  of  varieties  of  farm  wagons  from 
1,260  to  about  90.18  The  National  Brick  Manufacturers'  Asso- 
ciation, as  early  as  1893,  adopted  five  standard  sizes  for  bricks 

is  Letter,  Harvey  Whipple,  Secretary,  Dec.  6,  1921. 

IT  "Basic  Specifications  for  Tile  Work  and  Related  Documents,"  First 
Edition,  1921,  Associated  Tile  Mfrs. 

is  "What  Simplification  Saves  Us,"  Ed.  E.  Parsonage,  System,  De- 
cember, 1921,  p.  710. 


86  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

and  in  1918  successfully  reduced  the  number  to  three.19  The 
face  brick  manufacturers  have  established  two  standard  sizes 
and  over  seventy-five  per  cent  of  the  production  of  that  indus- 
try is  now  manufactured  in  these  two  sizes.20  The  paving  brick 
manufacturers,  at  a  joint  conference  with  representatives  of 
the  United  States  Department  of  Commerce,  the  United  States 
Chamber  of  Commerce,  and  various  societies  of  engineers  and 
architects,  state  highway  officials,  and  other  interests,  recently 
reduced  the  sizes  and  varieties  of  paving  bricks  from  sixty-six 
to  four  sizes,  of  which  there  are  eleven  varieties.21  The  car 
wheel  manufacturers  in  1909  established  three  standard  pat- 
terns for  the  hundreds  of  special  patterns  then  used,  not  only 
by  the  manufacturers  but  by  the  railroads  manufacturing  their 
own  car  wheels.22  The  writing  paper  manufacturers,  after  a 
great  deal  of  effort,  have  standardized  the  size  and  weight  of 
paper  stocks,  greatly  reducing  the  number  and  increasing  effi- 
ciency of  production.23  Associations  have  found  the  standardi- 
zation of  catalogues  of  such  importance  from  the  standpoint  of 
convenience  and  economy  that  a  number  of  organizations  have 
united  in  an  effort  to  secure  greater  simplification.24  Indeed,  it 
may  be  said  that  commodities  such  as  wheat,  cotton,  butter,  fruit 
and  vegetables,  and  to  a  certain  extent  lumber,  have  been  fairly 
well  standardized,  on  the  basis  of  a  fixed  number  of  varieties, 
either  through  legislation  or  by  action  of  trade  bodies. 

Standardization  of  Dimensions. — Probably  the  most  impor- 
tant form  of  standardization  is  that  directed  toward  the  estab- 

ia  Thirty-second    Annual    Convention,    National    Brick    Mfrs'.    Assn., 
1918,  p.  190. 

20  Letter,  R.  D.  T.  Hollowell,  Secretary,  American  Face  Brick  Mfrs'. 
Assn.,  Dec.  22,  1921. 

21  Proceedings  of  Conference  for  the  Simplification  of  Varieties  and 
Standards  for  Vitrified  Paving  Bricks,  with  the  Department  of  Commerce 
of  the  United  States,  Washington,  D.  C.,  Nov.  15,  1921,  pp.  7,  8,  11. 

22  "General  Survey  of  the  Mechanics  of  the  Chilled  Iron  Car  Wheel," 
George  W.  Lyndon  and  F.  K.  Vial,  p.   7;    "Recommended   Standards   for 
Chilled  Iron  Wheels,"  Assn.  of  Mfrs.  of  Chilled  Car  Wheels,  1917,  p.  5. 

23  Address,    E.    H.    Naylor,    Secretary,    Writing    Paper    Mfrs'.    Assn., 
Proceedings,  American  Envelope  Assn.,  1917,  pp.  8,  9,  11. 

a*  Printers'  Ink,  March  18,  1920,  p.  50. 


STANDARDIZATION  87 

lishment  of  uniform  dimensions.  The  fixing  of  dimensional 
standards  in  mechanical  parts,  as,  for  example,  on  screw  threads, 
nuts,  bolts,  standard  diameters  and  so  on,  can  benefit  many  in- 
dustries. The  German  standardization  program  is  emphasizing 
this  feature.25  The  automobile  industry  has  given  more  atten- 
tion to  this  phase  of  standardization  than  any  other  American 
industry.  It  has  established  screw  thread  sizes,  magneto  dimen- 
sions, tube  sizes,  felly  tolerances,  and  numerous  other  stand- 
ards, the  use  of  which  has  saved  the  public  thousands  of  dollars. 
(Leaflet  National  Automobile  Chamber  of  Commerce.)  The 
Sanitary  Potters'  Association  by  fixing  standards  of  dimensions 
on  certain  items  of  sanitary  earthenware  has  eliminated  excess 
measurements  and  features  which  added  to  the  making  and  sell- 
ing price.26  This  form  of  standardization  has  the  advantage  of 
wide  applicability  attained  with  little  restriction  on  individual- 
ity of  product. 

Benefits  of  Standardization. — The  benefits  of  standardiza- 
tion are  not  theoretical.  Based  upon  reports  from  one  hundred 
fifty  executives  and  engineers,  the  Society  of  Automotive  Engi- 
neers estimates  the  automotive  industry  saved  some  $750,000,000 
in  1920  alone  through  the  use  of  S.  A.  E.  standards.27  The 
standardization  of  type  bodies  which  cost  the  type  founders  over 
$3,000,000  it  is  conceded  has  saved  to  the  industry  many  times 
that  amount.28  A  reasonable  standardization  of  the  products 
and  processes  of  an  industry  is  of  unquestionable  benefit  to 
every  one.  The  economic  saving,  the  bettered  relations,  the  in- 
creased efficiency,  the  stimulation  of  competition  resulting,  oper- 
ate to  the  benefit  of  the  manufacturer,  distributor,  and  consum- 
ing public.  It  may  be  helpful  to  outline  briefly  the  advantages 
which  accrue  to  the  various  factors  in  industry  from  the  adop- 
tion of  a  sensible  standardization  plan. 

25  "Notes  on  Industrial  Standardization  in  Germany,"  P.  G.  Agnew, 
Secretary,  German  Engineering  Standards  Committee,  June  30,  1921. 

26  Bulletin,   National    Federation   of    Construction    Industries,   vol.    4, 
No.  3,  March  27,  1922. 

27  Letter,  C.  D.  LeFevre,  Sections  Secretary,  Feb.  15,  1922. 

28  "Waste  in  Industry,"  Report  of  Federated  American  Engineering 
Societies,  p.  186. 


88  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Advantages  to  the  Manufacturer.29 — Experience  has  demon- 
strated that  the  following  substantial  benefits  accrue  to  the 
manufacturer  from  the  general  adoption  of  a  policy  of  stand- 
ardization in  an  industry. 

First,  such  action  brings  a  substantial  reduction  in  the  cost 
of  manufacture.30  The  elimination  of  needless  varieties  and  the 
concentration  on  a  comparatively  few  standard  products,  which 
become  in  practical  effect  staples,  facilitate  quantity  production. 
The  stopping  and  adjusting  of  machines  for  running  off  special 
orders  is  largely  avoided,  and  the  productive  capacity  of  the 
plant  correspondingly  increased.31  A  drill  and  seeder  factory 
adopting  the  standards  of  its  association  found  the  costs  for  die 
changing  alone  decreased  from  $3.81  per  $100  of  productive 
labor  in  1917  to  $2.86  in  1919-1920.32  What  is  more  important, 
the  manufacturer  can  safely  produce  steadily  in  advance  of  the 
demand  when  his  products  are  of  a  kind  certain  to  meet  the 
needs  of  the  consuming  market,33  giving  steadier  employment  to 
his  labor  and  avoiding  abnormal  raw  material  markets.  It  is 
trite  to  say  that  the  ability  to  produce  in  quantity  tends  cer- 
tainly to  reduce  cost.  The  production  of  a  lesser  number  of 
varieties  inevitably  reduces  the  size  of  the  inventory  of  raw  ma- 
ss For  complete  statements  of  the  benefits  derived  from  standardization 
from  which  the  following  is  largely  derived,  see  "What  Simplification  Saves 
us,"  Ed.  C.  Parsonage,  System,  December,  1921,  p.  709;  Bull.  15,  Fabri- 
cated Production  Department,  Chamber  of  Commerce  of  the  United  States, 
so  Address,  G.  Brewer  Griffin,  Manager,  Automotive  Department,  West- 
inghouse  Electric  &  Mfg.  Co.,  before  Motor  and  Accessory  Mfrs'.  Assn., 
July  7,  1922;  "Standardization,  a  Check  to  Rising  Living  Cost,"  The  An- 
nalist, Oct.  18,  1920,  p.  487;  Bulletin,  National  Federation  of  Construction 
Industries,  vol.  4,  No.  3,  March  27,  1922;  Ninth  Annual  Report,  Secretary 
of  Commerce,  1921,  p.  75. 

si  Address,  E.  H.  Naylor,  Secretary,  Writing  Paper  Mfrs'.  Assn.  before 
American  Envelope  Mfrs'.  Assn.,  1917,  pp.  8,  9,  11. 

32  "What   Simplification   Saves   Us,"   Ed.    C.   Parsonage,   System,   De- 
cember, 1921,  p.  756. 

33  Address,  P.  G.  Agnew,  Secretary,  American  Engineering  Standards 
Committee,  before  American  Mining  Congress,  Nov.  17,  1920;  Letter,  Ru- 
dolph   Miller,    Chairman,    Building    Officials    Conference,    Dec.    19,    1921; 
Statement,  C.  T.  Henderson,  Cutler  Hammer  Mfg.  Co.,  Proceedings,  Asso- 
ciation of  Iron  and  Steel  Electrical  Engineers  of  America,  1921,  p.  13. 


STANDARDIZATION  89 

terials,  of  work  in  progress,  and  of  the  finished  product.3*  Less 
capital  is  tied  up  in  special  machinery,  dies,  molds  and  so  on. 
A  lessening  of  the  requirements  for  storage  of  materials,  un- 
finished and  finished,  necessarily  results.35  There  is  a  tendency 
also  toward  lower  prices  for  raw  materials  where  the  demand 
for  the  raw  materials  utilized  in  the  production  of  standard 
goods  is  more  stabilized,  and  in  a  sense  the  raw  materials  them- 
selves standardized  by  reason  of  the  fixed  character  of  demand. 
Cost  and  inspection  systems  are  greatly  simplified.36  In  these 
and  perhaps  other  ways,  a  substantial  reduction  of  manufactur- 
ing costs  is  made  possible. 

Second,  standardization  reduces  selling  costs.37  It  of  course 
frees  the  manufacturer  from  the  necessity  of  tying  up  unneces- 
sary capital  in  a  large  inventory  of  many  varieties  awaiting 
orders.  In  the  farm  implement  industry  three  plants  by  fol- 
lowing the  standards  adopted  by  the  industry  so  reduced  their 
inventories  that  their  saving  in  interest  charges  was  $6,000, 
$27,000  and  $90,000  per  year,  respectively.38  At  the  same  time 
this  relieves  him  from  the  necessity  of  maintaining  needlessly 
large  storage  facilities.39  The  handling  of  a  relatively  few 
standard  products  greatly  lessens  the  chances  of  errors  in  ship- 
ments which  so  often  result  in  costly  rejections.  It  lessens  cleri- 
cal work,  the  work  of  bookkeeping,  billing,  and  so  on.  It 
focuses  the  interest  of  the  salesmen  on  a  few  products,  pre- 
venting the  scattering  of  effort  which  flows  from  the  attempt  of 
a  salesman  to  sell  an  unwieldy  line.  The  cost  of  samples,  of 
baggage  and  express  charges,  and  other  items  is  lowered 

3*  "American  Industry  in  the  War,"  Report  War  Industries  Board, 
1921,  p.  67. 

35  Bulletin,  National  Assn.  of  Lumber  Manufacturers;  American  Lum- 
berman, Sept.  11,  1920,  p.  71. 

SB  "Standardization  a  Check  to  Rising  Living  Cost,"  Homer  Hoyt,  The 
Annalist,  Oct.  18,  1920,  p.  487. 

37  Address,  P.  G.  Agnew,  Secretary,  American  Engineering  Standards 
Committee,  before  American  Mining  Congress,  Nov.  17,  1920. 

38  "What   Simplification   Saves   Us,"    Ed.    C.   Parsonage,   System,   De- 
cember, 1921,  p.  709. 

39  Bulletin,  National  Federation  of  Construction  Industries,  vol.  4,  No. 
3,  March  27,  1922. 


90  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

through,  the  reduction  in  number  of  items  produced.  Because 
of  more  compact  packing  in  the  cars  and  larger  order  units, 
more  frequent  shipments  in  carload  lots  are  possible  with  a  re- 
sulting saving  in  freight.40  By  fixing  standard  quantities  on 
spools  of  thread,  it  was  estimated  that  600  freight  cars  per  year 
were  saved  for  more  important  uses  during  the  war.41  There 
is  much  less  likelihood  of  the  manufacturer  being  caught  with 
a  large  amount  of  obsolete  products.  The  craze  for  novelties  in 
recent  years  has  placed  a  terrific  burden  on  some  manufactur- 
ers, especially  where  the  return  of  the  goods  unsold  at  the  close 
of  the  season  is  permitted.  A  standardized  line  of  goods  has  a 
permanent  value — it  creates  a  consumer  appeal  which  steadily 
moves  them  into  consumption.  The  ability  to  assure  prompt 
delivery  makes  selling  easier,  and  consequently  less  costly.  Un- 
doubtedly, a  close  analysis  of  the  benefits  of  standardization 
would  show  many  other  ways  in  which  it  operates  to  reduce 
selling  cost. 

Third,  standardization  stabilizes  the  market.  It  makes  valu- 
able and  intelligible  trade  data  as  to  costs,  prices,  and  so  on.42 
The  exchange  of  cost,  price,  production,  and  similar  data  on  dif- 
ferent products  is  usually  worthless,  but  on  standard  articles 
they  have  a  certain  value,  for  on  them  an  accurate  comparison 
of  the  value  offered  by  competitors  may  be  made.  In  other 
words,  standardization  furnishes  one  of  the  mediums  by  which 
the  manufacturer  secures  an  exact  accurate  knowledge  of  mar- 
ket conditions.  It  has  already  been  pointed  out  that  such  knowl- 
edge tends  inevitably  towards  stabilization  of  a  kind  and  char- 
acter not  prejudicial  to  the  public  interest. 

Fourth,  the  limitation  of  the  kind  and  products  of  an  in- 

40  "Standardization  a  Check  to  Rising  Living  Cost,"  Homer  Hoyt,  The 
Annalist,  Oct.  18,  1920,  p.  487. 

41  "American  Industry  in  the  War,"  Report  War  Industries  Board, 
1921,  p.  66. 

42  Address,  C.  J.  Brand,  Chief  Bureau  of  Markets,  Department  of  Agri- 
culture;  Proceedings,  International  Apple   Shippers'  Assn.,   1918,   p.    159; 
"The  Present  Lumber  Standardization  Movement,"  David  G.  White,  South- 
ern Lumberman,   Dec.    17,   1921,   p.    113;    Letter,  Wm.    Carver,   Architect, 
Common  Brick  Mfrs'.  Assn.  of  the  United  States,  Dec.  27,  1921. 


STANDARDIZATION  91 

dustry  ought  to  tend  to  concentrate  the  skill  and  creative  ability 
of  the  industry  on  quality  and  to  result  in  the  production  of 
better  goods.43 

Fifth,  the  general  adoption  of  standards,  including  definite 
nomenclature,  permits  the  development  of  technical  literature 
in  the  industry,  thus  affording  a  medium  for  the  diffusion  of 
expert  knowledge  which  should  result  in  increasing  the  ef- 
ficiency of  the  personnel,  and  make  possible  real  achievements 
in  scientific  research.44 

Sixth,  standardization  unquestionably  benefits  the  manufac- 
turer by  bettering  trade  relations.45  The  various  branches  of 
many  of  our  industries  are  in  a  state  of  perpetual  distrust  and 
ill  will,  which  is  in  no  small  measure  due  to  the  lack  of  stand- 
ards. In  the  absence  of  fixed  standards,  each  party  to  the  dis- 
pute believes  the  other  fellow  is  a  crook.  The  fixing  of  clear 
standards  would  tend  to  prevent  disputes  as  well  as  probably 
prevent  deception  of  the  buyer.  It  would  lessen  cancellations 
and  litigation,  by  removing  the  cause. 

Seventh,  standardization  benefits  the  honest  manufacturer, 
by  making  it  difficult  for  the  crooked  manufacturer  to  practise 
deception  and  dishonesty.46  So  long  as  a  product  is  unstand- 
ardized,  there  is  a  large  field  for  deception  of  the  buyer.  As 
soon  as  definite  standards  are  established  and  enforced,  the 
manufacturer  practising  dishonest  methods  reveals  himself,  and 
he  finds  increasing  difficulty  in  doing  Jbusiness. 

Eighth,  the  simplification  of  the  products  of  an  industry 
through  a  clear-cut  standardization  of  grades,  qualities,  and  so 
on,  increases  the  effectiveness  of  an  industry,  in  competition 

43  Address,  P.  G.  Agnew,  Secretary,  American  Engineering  Standards 
Committee,  before  American  Mining  Congress,  Nov.  17,  1920. 

44  Bulletin,  National  Assn.   of  Lumber  Mfrs.,  American  Lumberman, 
Sept.    11,   1920,  p.   71;    Statement,  H.   F.   Stratton,   Electric  Controller  & 
Mfg.  Co.;   Proceedings,  Assn.  of  Iron  &  Steel  Electrical  Engineers,  Jan- 
uary, 1921,  p.  12. 

45  "Inspection  Service  and  Standardization,"  C.  J.  Brand,  Proceedings, 
International  Apple  Shippers'  Assn.,  1918,  p.  159. 

*6  "Inspection  Service  and  Standardization,"  C.  J.  Brand,  International 
Apple  Shippers'  Assn.,  1918,  p.  159;  Letter,  R.  D.  T.  Hollowell,  Secretary, 
American  Face  Brick  Assn.,  Dec.  22,  1921. 


92  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

with  other  industries.47  The  manufacturers  of  clay  products, 
as  already  noted,  found  it  necessary  to  standardize  their  prod- 
ucts, in  order  to  compete  effectively  with  other  producers. 
The  great  extent  to  which  bricks  have  been  standardized  during 
the  past  several  years  is  rapidly  giving  brick  a  competitive  ad- 
vantage over  wood  which  still  is  only  partly  standardized.  The 
consumer  will  soon  be  in  a  position  to  buy  brick  with  absolute 
assurance  as  to  the  quality  he  is  getting.  Unless  he  is  an  expert, 
he  buys  his  lumber  on  the  assurance  of  the  sellers.  Where  any 
competitive  articles  are  involved,  it  is  natural  for  the  buyer,  in 
the  absence  of  any  expert  knowledge  of  values,  to  purchase 
the  standardized  products  which  guarantee  to  him  a  certain 
quality. 

Finally,  a  policy  of  reasonable  standardization  appears  nec- 
essary in  many  of  our  industries,  if  they  are  to  compete  suc- 
cessfully in  foreign  trade.  The  distance  separating  buyer  from 
seller  in  export  trade  is  a  severe  handicap  on  business,  which  the 
assurance  of  a  fixed  standard  quality,  with  equal  assurance  of 
ease  of  replacement  and  repair,  go  a  long  way  to  overcome.  The 
wide  degree  of  standardization  followed  in  the  automobile  in- 
dustry has  been  an  important  factor  in  enabling  effective  com- 
petition of  American  cars  with  foreign  cars  in  the  markets  of 
the  world.48  We  have  come  to  think  of  quantity  production  as 
a  peculiar  achievement  of  the  American  manufacturers.  But 
for  seventeen  years  British  manufacturers  have  operated 
through  the  British  Engineering  Standards  Association  in  fix- 
ing standards.49  This  organization  bears  in  mind  the  common 
interest  of  producer  and  consumer.  By  direct  contact  with  in- 
dustrial conditions  and  working  on  the  principle  of  voluntary 
standards,  with  periodic  revisions,  it  has  been  a  powerful  factor 
in  the  steel,  electrical  and  automobile  industries  of  that  country, 
which  are  rapidly  developing  highly  efficient  methods  of  quantity 
production.  A  hallmark  or  brand  has  been  adopted  to  be  at- 

47  "The  Present  Lumber  Standardization  Movement,"  David  G.  White, 
Southern  Lumberman,  Dec.  17,  1921,  p.  114. 

48  Leaflet,  National  Automobile  Chamber  of  Commerce. 

49  See  Summary  of  the   Work  of  the  British  Engineering  Standards 
Association,  by  E.  Le  Maestre,  Secretary;  Annals  of  the  American  Acad- 
emy, vol.  82,  p.  247. 


STANDARDIZATION  93 

tached  by  manufacturers  to  their  goods  as  an  indication  they 
are  made  in  accordance  with  British  standard  specifications. 

The  lessons  of  the  war  have  given  a  great  impetus  to  stand- 
ardization in  Europe,  and  both  Great  Britain  and  Germany  are 
carrying  on  national  standardization  programs  on  a  large  scale. 
The  central  organization  for  standardization  work  in  Germany, 
the  Normenausschuss  der  Deutschen  Industrie,  was  organized  in 
1917,  growing  out  of  the  efforts  of  the  government  to  increase 
production  and  conserve  resources  during  the  war.  This  or- 
ganization is  composed  of  engineering  societies,  trade  associa- 
tions, government  ministries  and  over  five  thousand  firms. 
After  full  investigation  the  standard  is  officially  proposed  for 
a  fixed  period  and  in  the  event  no  important  criticisms  are  re- 
ceived, is  widely  published  as  an  industrial  standard.  The  Ger- 
mans recognize  the  importance  of  standardization  along  national 
lines  as  a  means  of  furthering  competition  in  foreign  trade  and 
realize  that  the  enlargement  of  their  export  trade  is  essential  to 
the  rehabilitation  of  the  German  industry.  They  are  therefore 
submerging  temporary  individual  commercial  advantages  and 
making  rapid  strides  in  their  standardization  work,  in  which 
great  emphasis  is  being  given  to  dimensional  standards.50 
American  manufacturers  must  be  able  to  offer  advantages  to 
dealers  in  foreign  countries  equal  to  those  offered  by  British 
and  German  competition  if  our  foreign  trade  in  many  lines  is 
to  be  developed. 

Benefits  to  Distributors. — Standardization  results  in  substan- 
tial benefits  to  distributors.  First,  it  simplifies  buying.  Buyers 
far  distant  from  the  seller  are  able  to  buy  with  reasonable  cer- 
tainty as  to  what  they  will  receive.  The  fixing  of  a  few  clear- 
cut  standards  also  enables  the  distributor  to  buy  with  greater 
protection  against  fraud.  To  the  skilled  buyer,  which  the  dis- 
tributor usually  is,  this  is  perhaps  not  so  vital  but  it  simplifies 
his  task  and  makes  inspection  easier,  by  affording  him  basic 
tests  on  standards.  He  is  aided  too  because  he  can  make  an 
accurate  comparison  of  values  and  prices  when  the  commodities 
offered  by  various  manufacturers  are  produced  under  the  same 
standards.  To  the  extent  that  general  market  data  on  produc- 

so  "Notes  on  Industrial  Standardization  in  Germany,"  June  30,  1921, 
American  Engineering  Standards  Committee. 


94  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tion,  shipments,  prices  and  so  on  are  made  available,  with  ref- 
erence to  the  several  varieties  of  standard  articles,  he  is  given 
a  sound  foundation  on  which  to  base  his  buying  program.  Sec- 
ondly, standardization  reduces  the  costs  of  the  dealer.  He  is 
freed  from  the  necessity  of  carrying  a  needlessly  heavy  stock 
of  many  items,  tying  up  an  undue  amount  of  his  capital.51  This 
means  too,  that  he  is  going  to  have  less  shop-worn  and  obsolete 
stock;  less  stock  means  reduced  storage  requirements  and  de- 
creased handling  and  clerical  work.  The  reduction  in  varieties 
carried  should  make  selling  easier,  not  only  because  it  focuses 
the  efforts  of  the  sales  force,  increasing  their  efficiency,  but  also 
because  it  does  not  scatter  the  attention  of  the  buyer  among 
many  items,  causing  delay  and  indecision  in  making  purchases. 
Finally,  standardization  betters  the  quality  of  the  service,  which 
the  distributor  can  render  to  his  customers.  Manifestly  the 
ability  of  the  dealer  to  give  immediate  delivery  is  increased 
when  he  handles  a  few  standard  articles  which  he  can  carry  in 
stock,  rather  than  a  great  variety  of  articles,  only  a  few  of 
which  his  limited  capital  will  permit  him  to  carry.  Even  on 
orders  to  the  factory,  he  is  assured  of  more  prompt  delivery  and 
consequently  better  service  to  his  customers.  The  problem  of 
supply  repairs  is  also  greatly  simplified  through  the  interchange- 
ability  of  parts  on  a  standardized  product.  With  a  much  smaller 
investment  in  parts,  the  dealer  is  able  to  give  a  much  better 
service. 

Benefits  to  the  Public. — A  simplified  line  of  products  of  fixed 
grades,  clearly  defined  in  many  industries  will,  in  the  absence  of 
improper  activities  by  trade  groups,  result  in  great  benefit  to  the 
public.  The  mere  elimination  of  needless  economic  waste  of  ma- 
terials and  the  freeing  of  capital  needjessly  tied  up  is  of  great 
public  benefit.  These  alone,  combined  with  the  other  factors 
named  affecting  costs,  under  a  competitive  system,  ought  to  re- 
sult in  lower  prices  to  the  consumer.52  The  greater  availability 
of  the  standard  articles  everywhere,  the  ease  of  securing  repairs 

si  "American  Industry  in  the  War,"  Report,  War  Industries  Board, 
1921,  pp.  67,  69.  Proceedings,  Thirty-seventh  Annual  Convention,  National 
Funeral  Directors'  Assn.,  p.  55. 

52  "American  Industry  in  the  War,"  Report,  War  Industries  Board, 
1921,  p.  69. 


STANDARDIZATION  95 

is  worthy  of  consideration.  The  emphasis  on  quality  which  the 
concentration  of  the  production  facilities  of  an  industry  would 
inevitably  induce,  should  result  in  a  superior  article.  The  fixing 
of  standards,  backed  by  some  effective  method  of  policing,  either 
by  the  industry  or  by  the  Government,  is  vital,  if  the  de- 
frauding of  customers  is  to  be  prevented;  for  the  average  con- 
sumer has  not  the  time  to  acquire  the  expert  knowledge  of  quali- 
ties necessary  in  making  the  purchase  of  commodities  he  rarely 
buys.  As  prices  increase  the  need  for  fixed  standards  becomes 
more  important.53  The  ability  of  a  manufacturer  to  produce  a 
stable  standardized  article  steadily  and  in  advance  of  the  de- 
mand, by  stabilizing  employment  and  increasing  the  earnings  of 
labor,  reduces  social  unrest,  prevents  needless  privations  of  labor, 
and  operates  to  the  good  of  the  public.  We  are  rapidly  coming 
to  realize  too  that  the  maintenance  and  development  of  foreign 
trade  is  becoming  more  and  more  a  matter  of  great  public  bene- 
fit. The  judgment  of  business  men  in  wide  experience  of  export 
trade  is  that  the  standardization  of  our  products  is  essential  to 
a  permanent  foreign  business. 

From  a  public  standpoint  too,  the  tremendous  value  of 
standardization  in  war  can  in  the  judgment  of  high  army  of- 
ficials, scarcely  be  overemphasized.54  An  industry  with  a  stand- 
ardized production  can  be  made  immediately  effective  for  war. 
The  miscellaneous  products  of  an  unstandardized  industry, 
create  endless  confusion,  needless  expense,  and  hamper  the  ef- 
ficient conduct  of  modern  warfare.  The  supply  branches  of  the 
army  have  therefore  adopted  as  army  standards,  the  standards 
published  by  the  American  Engineering  Standards  Committee.55 

Dangers  of  Standardization. — But  there  are  arguments  also 
against  the  adoption  of  too  wide  a  standardization  program, 
which  may  apply  with  particular  force  in  certain  indus- 
tries. Standardization  should  not  be  carried  to  such  an  extent 
as  to  destroy  initiative  and  discourage  development.  Ar- 
chitects, engineers,  artists,  in  fact  most  of  us,  want  to  retain  the 

53  "Southern  Pine  and  Reconstruction,"  Proceedings,  Southern  Pine 
Assn.,  pp.  30,  33. 

s*  Address,  Col.  Geo.  S.  Gibbs,  U.  S.  General  Staff,  before  the  American 
Mining  Congress,  1922. 

65  Washington  Herald,  Jan.  2,  1922. 


96  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

individuality  of  our  work.  Nor  do  we  want  standards  to  be 
fixed,  if  they  are  to  be  taken  as  the  standards  for  all  time.  In 
industries  where  style  and  fashion  governs,  these  objections  are 
particularly  apt.  But  there  is  no  conflict  between  a  sensible 
standardization  movement  and  the  free  play  of  originality.  In 
fact  a  reasonable  standardization  of  products  and  particularly 
of  dimensions,  stifles  individuality  only  in  those  factors  where  it 
is  superficial  and  useless,  focusing  efforts  at  originality  on  fac- 
tors where  it  will  not  do  economic  harm.56  An  industry  stand- 
ardizing its  products  must  take  into  account  also  the  real  needs 
of  the  public  and  share  some  of  the  economies  flowing  from  a 
simplification  program  with  the  public.  A  general  reduction  of 
varieties  or  styles,  without  any  compensating  reduction  in  price, 
will  only  antagonize  the  public.  Too  strict  a  standardization 
may  in  fact  increase  price.  Care  must  also  be  exercised  that 
in  the  development  of  standards,  terms  are  not  employed  which 
will  operate  to  the  detriment  or  advantage  of  particular  manu- 
facturers.57 It  has  also  been  contended  that  standardization 
makes  mass  production  under  conditions  of  heavy  fixed  capital 
the  most  economical,  and  as  a  result  tends  to  eliminate  the  small 
manufacturer.58  This  objection,  however,  appears  rather  exag- 
gerated. 

Procedure. — At  the  threshold  of  an  attempt  toward  stand- 
ardization, an  industry  must  determine  the  policy  and  proce- 
dure to  be  followed.  Four  general  methods  are  possible : 

Action  by  Association  Only. — The  members  of  the  industry 
through  voluntary  cooperation  may  work  out  a  satisfactory 
standardization  program.  Some  industries  have  followed  this 
plan  and  through  committees,  and  their  annual  meetings,  have 
gradually  evolved  a  considerable  degree  of  standardization  in 
the  industry.  The  objections  to  this  method  are  first,  that  it  is 
difficult  in  the  absence  of  impartial  parties,  to  secure  the  neces- 
sary unity  of  action  because  of  competitive  fears,  and  secondly, 

56  Alfred   J.    Smith,   General   Manager,   Music   Industry,    Chamber   of 
Commerce,  before  the  Taylor  Society,  Printers'  Ink,  Dec.  9,  1920,  p.  72. 

57  Proceedings,  Assn.  of  Iron  &  Steel  Electrical  Engineers,  January, 
1921,  p.  14. 

ss  "Standardization  and  Its  Relation  to  Industrial  Concentration," 
Homer  Hoyt;  Annals  of  the  American  Academy,  vol.  82,  p.  271. 


STANDARDIZATION  97 

it  is  likely  to  ignore  the  interests  of  other  branches  of  the  in- 
dustry, and  of  the  public. 

Cooperation  with  Technical  and  Engineering  Organizations. 
— The  second  method  is  through  cooperation  with  outside  ex- 
pert organizations.  There  are  organizations  of  this  character 
which  have  done  work  of  tremendous  value  to  American  in- 
dustries. The  American  Society  of  Testing  Materials,  is  an 
efficiently  organized  body  of  experts,  which  has  developed  in 
cooperation  with  many  industries,  standard  specifications  and 
tests,  which  have  done  much  to  stabilize  conditions  of  purchase 
and  of  use.  The  American  Society  of  Mechanical  Engineers 
has,  after  investigation,  approved  many  standards  logically  com- 
ing within  their  field.  The  Society  of  Automotive  Engineers, 
working  in  cooperation  with  the  four  great  associations  in  the 
automotive  industry,  has  saved  the  industry  and  the  public 
heavy  sums.  The  American  Institute  of  Electrical  Engi- 
neers has  developed  many  standards  for  electrical  machinery 
and  apparatus,  its  work  having  been  followed  to  a  considerable 
extent  by  similar  bodies  in  Europe.59  The  need  for  a  central 
body  of  unquestioned  impartiality  and  expertness,  through 
which  scientific  opinion  and  business  practicalities  could  be  con- 
sidered and  merged  into  workable  standards  with  the  greatest 
economy  of  effort,  resulted  in  the  creation  of  the  American  En- 
gineering Standards  Committee  in  1918.  The  technical  socie- 
ties already  named^  and  the  American  Society  of  Civil  Engi- 
neers, were  the  original  founders,  but  the  organization  is  now 
made  up  of  official  representatives  of  our  leading  technical  so- 
cieties, trade  associations  and  governmental  departments.  Its 
purpose  is  to  serve  as  a  national  clearing-house  for  engineering 
and  industrial  standardization,  thereby  preventing  duplication 
of  work  and  the  formulation  of  conflicting  standards;  to  pro- 
mote in  foreign  countries  a  knowledge  of  American  standards; 
and  to  act  as  an  authoritative  channel  of  cooperation  in  inter- 
national standardization.60  This  body  is  working  with  repre- 
sentative bodies  of  Belgium,  Canada,  Switzerland  and  England, 
in  the  formation  of  international  standards  on  some  products 

59  C.  A.  Adams,  Annals  of  the  American  Academy,  vol.  82,  p.  294. 
so  Annual  Report,  American  Engineering  Standards  Committee,  1920, 
p.l. 


98  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

and  is  closely  in  touch  with  the  national  organizations  in  all 
countries  working  on  standardization.61  Under  the  plan  of  this 
organization,  the  determination  of  standards  in  each  industry, 
is  placed  in  the  hands  of  a  technical  committee,  known  as  a 
sectional  committee,  made  up  of  representatives  designated  by 
the  various  bodies  interested.  Each  committee  is  practically 
autonomous  in  its  standardization  work,  subject  only  to  the 
jurisdiction  of  the  main  committee,  the  function  of  which  is  to 
see  to  it  that  each  body  or  group  concerned  in  a  standard  shall 
have  an  opportunity  to  participate  in  its  formation.  The  sim- 
plest standards  sometimes  can  be  formulated  only  with  the  co- 
operation and  consent  of  many  bodies.62  At  the  present  time 
ten  national  organizations  are  working  through  this  organiza- 
tion in  fixing  specifications  for  railroad  ties,  and  more  than  a 
dozen  national  associations  are  cooperating  in  formulating  stand- 
ards for  elevators.63  The  procedure  of  the  committee  also  per- 
mits of  a  general  correlating  committee,  representing  all 
branches  of  an  industry.  This  great  organization,  in  its  very 
short  period  of  existence,  has  done  work  of  untold  value  to 
American  industries,  and  lends  its  cooperation  to  any  industry 
where  its  assistance  can  be  of  practical  value.  It  affords  the 
machinery,  through  which  many  of  our  industries  can  evolve 
practical  standards  in  an  expert  and  public-spirited  way,  with- 
out governmental  interference. 

Cooperation  with  the  Government. — An  association  may 
bring  about  standardization  through  cooperation  with  govern- 
mental agencies.  The  support  of  the  government  is  often  a 
powerful  factor  in  effecting  simplification.  It  is  recognized  that 
the  government  is  unbiased.  Its  laboratory  facilities  for  many 
problems  can  not  be  duplicated.  Its  aid  is  secured  at  little  ex- 
pense. The  Bureau  of  Standards  of  the  Department  of  Com- 
merce for  some  years  has  rendered  signal  service  to  our  indus- 
tries in  the  development  of  many  standards.  The  Bureau  of 

61  Address,  P.  G.  Agnew,  Secretary,  American  Engineering  Standards 
Committee,  before  American  Mining  Congress,  Nov.  17,  1920. 

62  Letter,   P.  G-.   Agnew,   Secretary,   American   Engineering   Standards 
Committee,  Dec.  2,  1920. 

es  Annual  Report,  American  Engineering  Standards  Committee,  1920, 
p.  6. 


STANDARDIZATION  99 

Chemistry  and  the  Forest  Products  Laboratory  of  the  Depart- 
ment of  Agriculture  have  also  been  helpful.  A  number  of  asso- 
ciations, as  has  already  been  described  in  this  chapter,  have  co- 
operated with  these  agencies  with  substantial  benefits  to  them- 
selves. When  a  governmental  department  is  a  service  depart- 
ment, such  as  the  Department  of  Commerce,  rather  than  a  regu- 
latory department,  work  of  unquestioned  value  can  be  accom- 
plished in  this  way.  When,  however,  the  department  is  also  a 
policing  agency,  there  is  danger  of  a  demand  being  made  for  un- 
reasonably strict  standards,  suitable  for  laboratory  purposes, 
but  utterly  inapplicable  to  factory  production.  The  Depart- 
ment of  Commerce,  of  course,  does  not  concern  itself  with  regu- 
lation, and  under  the  leadership  of  Secretary  Hoover,  is  em- 
phasizing the  economic  and  business  importance  of  standardiza- 
tion, and  working  in  a  fine  spirit  of  cooperation  with  the  trade 
associations  of  the  country.  Any  association  contemplating 
work  for  standardization,  in  any  of  its  forms,  should  at  the  out- 
set communicate  with  the  Department  of  Commerce,  in  order 
to  get  the  benefit  of  its  experience  and  judgment,  resulting  from 
contact  with  many  other  trade  organizations. 

Legislation. — Finally,  standardization  may  be  accomplished 
through  legislation.  By  far  the  most  important  legislation  of 
this  type  is  the  Food  and  Drug  Act  of  1906,64  under  which  the 
Secretary  of  Agriculture  has  fixed  many  minimum  standards 
for  food  products  and  drugs.  This  legislation,  while  perhaps  in 
some  cases  arbitrarily  administered,  has  resulted  in  a  great 
improvement  in  quality,  and  a  lasting  benefit,  to  the  indus- 
tries concerned  and  to  the  general  public.  The  law  establish- 
ing grading  standards  for  grain  65  has  also  been  helpful  in  stabi- 
lizing conditions  in  the  grain  trade  and  protecting  the  interests 
of  the  producer.  Among  other  laws  may  be  mentioned  the 
apple  grading  law,66  the  Insecticide  Act,67  the  Standard  Barrel 

64  Act  of  June  30,  1906,  Ch.  3915,  34  Stat.  L.  768,  3  Fed.  Stat. 
Ann.  358. 

es  U.  S.  Grain  Standards  Acts  of  Aug.  11,  1916,  Ch.  313,  39  Stat.  L. 
482,  Fed.  Stat.  Ann.  Supp.,  1918,  p.  7. 

es  Act  of  Aug.  3,  1912,  Ch.  273,  37  Stat.  L.  250,  1  Fed  Stat.  Ann.  237. 

67  Act  of  April  26,  1910,  Ch.  191,  36  Stat.  L.  331,  1  Fed.  Stat. 
Ann.  220. 


100  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Act,68  the  Standard  Container  Act  and  the  act  authorizing  the 
Secretary  of  Agriculture  to  establish  standard  grades  for 
cotton.69 

Usually  legislation  comes  as  a  last  resort,  only  when  an  in- 
dustry fails  to  cope  sincerely  with  its  own  problems.  Most  of 
the  federal  laws  fixing  standards  have,  therefore,  been  enacted 
to  correct  gross  evils,  which  an  industry  itself  failed  to  remedy. 
While  the  power  of  the  government  may  be  of  invaluable  as- 
sistance when  there  are  elements  in  the  industry  which  prefer  to 
prosper  through  deception  and  fraud  and  the  forcing  of  unpleas- 
ant conditions  upon  competitors,  there  are  strong  objections  to 
handling  standardization  questions  through  legal  enactment,  ex- 
cept as  a  last  resort.  It  increases  enormously  the  difficulties  of 
revision,  for  not  only  the  industry  itself  must  be  persuaded  as 
to  the  necessity,  but  also  Congress  must  be  convinced  of  the 
need  as  well  as  of  the  importance  of  the  legislation,  in  contrast 
with  any  other  pending  measures.  Few  standards  should  ever 
be  considered  final.  Standardization  by  law  also  subjects  the 
industry  to  regulations,  which  at  times  may  be  theoretical  and 
arbitrary,  and  utterly  lacking  in  appreciation  of  the  necessi- 
ties of  factory  production.  The  fixing  of  standards  by  state  laws 
should  be  avoided  and  fought  to  the  limit,  for  their  inevitable 
effect  is  to  interfere  artificially  with  the  free  flow  of  trade,  to 
increase  the  difficulties  of  doing  business,  by  the  necessity  of 
compliance  with  many  different  regulations.  They  may  some- 
times stifle  competition  arbitrarily,  with  consequent  public 
injury. 

Means  of  Enforcement. — The  laws,  Federal  and  State, 
usually  provide  adequate  means  of  enforcement  and  proper 
penalties.  Such  enactments  as  the  Food  and  Drug  Act,  require 
a  considerable  inspection  force  scattered  throughout  the  coun- 
try. In  the  absence  of  legislation,  the  enforcement  of  standards 
must  depend  upon  the  voluntary  action  of  an  industry  so  far 
as  ordinary  manufactured  articles  are  concerned.  Where  com- 
pliance with  a  standard  rests  solely  within  the  volition  of  a 

es  Act  of  March  4,  1915,  Ch.  158,  38  Stat.  L.  1186,  1  Fed.  Stat. 
Ann.  236. 

ea  Agricultural  Appropriation  Act  of  March  23,  1908,  Ch.  192,  1  Fed. 
Stat.  Ann.  239. 


STANDARDIZATION  '  '  ;\  101 

manufacturer  about  the  only  method  of  enforcement  is  the  edu- 
cation of  the  distributor  and  the  consumer  as  to  the  benefits 
resulting  from  the  use  of  the  standard  articles.  A  common  in- 
signia, the  property  of  the  association,  which  may  be  applied 
only  to  products  complying  with  the  standard,  may  effectively 
tie  up  with  such  a  campaign  of  education.  Sometimes,  too,  the 
effect  of  the  development  of  fixed  standards  by  a  majority  of 
the  industries,  compels  rather  surprising  changes  in  the  raw 
material  markets;  and  these  changes  practically  compel  recalci- 
trants to  get  in  line  as  a  matter  of  business  economy.  Association 
standards  and  grades  can  also  be  specified  in  all  contracts.  Where 
the  article  is  inherently  difficult  to  standardize,  as,  for  example,  is 
the  case  with  bulk  commodities,  such  as  lumber,  coal,  and  so  on, 
it  is  necessary  to  back  such  standards  with  an  inspection  system. 
Such  a  system  must  be  efficient  and  fair,  if  good-will  between 
buyer  and  seller  is  to  be  maintained.  The  great  lumber  asso- 
ciations, such  as  the  Southern  Pine  Association,  the  National 
Hardwood  Lumber  Association,  and  others  maintain  inspection 
bureaus,  which  have  acquired  a  wide  reputation  through  the 
lumber  industry.  Where  goods  are  purposely  sold  as  of  a  cer- 
tain standard  when  they  are  in  fact  off  grade,  it  is  probable  the 
Federal  Trade  Commission  has  jurisdiction  to  suppress  the 
practice;  for  this  would  seem  to  be  clearly  a  practice  unfair  to 
competitors  who  sell  their  products  honestly. 

Legality  of  Standardization. — Any  reasonable  standardiza- 
tion program,  evolved  in  a  fair  spirit,  giving  consideration  to 
the  judgment  of  all  factors  in  the  industry,  and  the  interests 
of  the  public,  can  scarcely  run  afoul  of  the  law.  There  is  no 
doubt  that  the  standardization  of  sizes  and  types  has  in  it  an 
element  of  public  danger,  in  that  it  establishes  common  units 
for  price  comparisons,  thus  making  price  fixing  agreements 
very  easy  of  attainment.  The  fact  that  such  an  activity  can  be 
used  to  accomplish  an  unlawful  end  does  not,  however,  make  it 
unlawful.  It  is  the  actual  use  for  improper  purposes  which  is 
unlawful.  Standardization  should  never  be  used  as  a  cloak  for 
the  elimination  of  the  cheaper  grades  of  a  commodity,  thus  forc- 
ing only  the  high-priced  goods  on  the  public.  The  elimination 
by  agreement  of  the  low-priced  goods  from  competition,  is  prob- 
ably unlawful.  But  so  long  as  a  reasonable  variety  of  standard 


102    ?.  :  T&A>J>E  ASSOCIATION  ~  ACTIVITIES  AND  THE  LAW 

products  is  offered  to  the  public,  including  the  low-priced  goods, 
and  the  adoption  of  the  standards  results  in  substantial  eco- 
nomic benefits,  which  are  shared  with  all  branches  of  the  in- 
dustry, and  with  the  consuming  public,  it  is  difficult  to  conceive 
of  an  association  becoming  involved  in  any  legal  difficulties  so 
far  as  the  Federal  Anti-Trust  Laws  are  concerned.  The  Attor- 
ney General  of  the  United  States  has  expressed  the  opinion  that 
an  association  may  properly  standardize  qualities,  grades,  proc- 
esses, machinery,  and  technical  terms,  as  long  as  such  activities 
are  not  used  as  a  scheme  to  curtail  production  or  enhance 
prices,  and  do  not  have  the  effect  of  suppressing  competition.70 
Any  association  which  projects  its  standardization  program  in  a 
fair,  competitive  spirit  need  not  fear  the  possibility  of  prosecu- 
tion. But  any  association  which  attempts  to  employ  this  method 
as  a  device  for  the  elimination  of  competition  must  expect  in- 
evitably to  be  called  to  account,  for  the  Supreme  Court  has  re- 
peatedly stated  that  it  will  not  permit  a  restraint  of  trade  to 
be  accomplished  by  any  subterfuge  or  indirection. 

70  See  letters  of  Hon.  Herbert  Hoover,  Secretary  of  Commerce,  Feb.  3, 
1922,  and  Hon.  H.  M.  Daugherty,  Attorney  General,  Feb.  8,  1922,  Ap- 
pendix J. 


CHAPTER  VII 
INDUSTRIAL  RESEARCH 

Value  of  Research. — The  value  of  organized  research,  not 
only  to  industry,  but  to  the  national  welfare  is  receiving  wide 
recognition. 

These  words  of  Samuel  Gompers,  President  of  the  American 
Federation  of  Labor,  are  significant  of  the  broadening  attitude 
of  Labor. 

"To-day  no  one  disputes  the  fundamental  service  which  research 
makes  to  progress  and  to  maintaining  the  fabric  of  civilized  life. 
Whatever  help  research  and  science  can  offer,  Labor  will  welcome."  1 

Indicative  of  the  modern  business  man's  opinion,  is  this 
statement  of  John  J.  Carty,  Vice-president  of  the  American 
Telephone  and  Telegraph  Company: 

"The  importance  of  scientific  research  to  our  American  industries 
can  not  be  exaggerated.  .  .  .  Enough  is  already  known  to  justify  me 
in  saying,  that  unless  the  manufacturers  of  the  United  States  estab- 
lish research  departments  as  integral  parts  of  their  own  internal  or- 
ganizations, our  industries  will  tend  to  fall  behind  those  of  other 
countries."  2 

Could  the  attitude  of  Labor  and  of  Industry  toward  this 
great  activity  be  more  emphatically  stated? 

The  Facts  Fortify  Such  Opinions. — The  remarkable  coopera- 
tion of  science,  industry  and  government  in  Germany,  a  story 
not  yet  fully  told,  not  only  placed  that  country,  within  a  few 
years,  in  the  forefront  of  industrial  powers,  but  also  gave  her  a 
paralyzing  control  over  great  portions  of  American  industry, 
largely  by  reason  of  the  exclusive  possession  of  processes  and 
methods  evolved  from  scientific  research.  The  representative  of 

1  Leaflet,    Personnel    Kesearch    Federation,    August,    1921 ;    issued    by 
National  Research  Council. 

2  "Science   and    Industry,"    John    J.    Carty,    Vice-president,    American 
Telephone  &  Telegraph  Co,,  Cir,  8,  National  Research  Council,  p.  2. 

103 


104  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  German  government,  a  short  time  prior  to  our  entry  into 
tho  war,  was  able  to  cable  his  government  that  they  had  in  their 
possession  the  power  to  throw  out  of  work  four  million  men  in 
this  country.3  The  governments  of  England,  of  France,  and  of 
Japan,  have  recognized  the  tremendous  value  of  organized  re- 
search to  the  nation,  in  times  of  peace  as  well  as  war,  and  have 
organized  great  central  research  laboratories  to  serve  their  in- 
dustries. The  British  government  maintains  that  research  is 
"the  main,  if  not  the  only,  source  of  fresh  productivity  in  in- 
dustry, and  it  is  only  by  increased  productivity  the  world  will 
find  its  way  out  of  its  present  economic  difficulties."4  There 
is  a  world-wide  recognition  of  the  importance  of  science,  as  a 
practical  working  force  in  furthering  national  welfare.  It  is 
not  an  exaggeration  to  say  that  the  future  progress  of  the 
American  industry,  to  a  considerable  extent,  depends  upon 
the  effective  application  of  scientific  knowledge,  in  a  prac- 
tical way,  by  business  men,  to  the  problems  of  industry.  Our 
great  corporations,  such  as  the  General  Electric  Company,  the 
American  Telephone  &  Telegraph  Company,  the  Eastman 
Kodak  Company,  and  others,  maintain  great  laboratories  on 
which  they  have  spent  huge  sums  for  research  work.  It  is  rec- 
ognized by  the  officers  of  such  great  business  organizations,  that 
the  "contributions  of  pure  science,  as  a  whole,  become  of  in- 
calculable value  to  all  the  industries. ' ' 5 

One  invention  in  the  research  laboratory  of  the  E.  I.  DuPont 
de  Nemours  Company  effected  a  net  saving  to  the  company 
of  one  million  dollars  in  five  years.  The  total  expenditures  of 
the  DuPont  research  organization  for  the  years  1912  to  1918, 
was  $6,051,000,  and  the  calculable  saving,  disregarding  those 
benefits  which  could  not  be  figured  in  dollars  and  cents,  but 

3  Address,  Francis  P.  Garvan,  former  Alien  Property  Custodian,  Jour- 
nal of  Industrial  and  Engineering  Chemistry,  October,  1921. 

4  Report,  Committee  of  the  Privy  Council  for  Scientific  and  Industrial 
Research,  1920-1921,  p.  15. 

s  "The  Relation  of  Pure  Science  to  Industrial  Research,"  John  J. 
Carty,  Vice-president,  American  Telephone  &  Telegraph  Co,;  Science,  Oc- 
tober, 1916,  vol.  44,  No.  1137,  pp.  511,  518:  or  Cir.  14,  National  Re- 
search Council;  see  also  address,  "Industrial  Research,"  Frank  B.  Jewett, 
Chief  Engineer,  Western  Electric  Co.,  before  Royal  Canadian  Inst.,  Qir. 
4,  National  Research  Council,  p.  3. 


INDUSTRIAL  RESEARCH  105 

which  were  very  important,  amounted  to  $82,401,000.6  The 
Western  Electric  Company's  laboratory  now  occupies  a  half 
million  feet  of  floor  space  in  a  building  especially  designed  for 
it  and  the  staff  has  grown  from  several  trained  men  to  several 
thousand  employees  drawn  from  the  universities  and  research 
laboratories  of  the  world.7  Several  huge  laboratories  have  beeji 
founded  by  the  larger  electrical  manufacturing  concerns  and 
the  vast  sums  spent  upon  them  annually,  to  quote  an  authority 
"return  to  the  industry,  and  through  the  industry  to  the  public, 
improvements  in  the  art  which  taken  altogether  have  a  value 
many  times  greater  than  the  cost  of  their  development. ' ' 8 

Fifty  industries,  employing  over  four  million  people,  are  de- 
pendent upon  the  coal  tar  derivative  chemical  industry,  an  in- 
dustry which  is  the  offspring  of  scientific  research.9  Indeed 
many  great  industries,  such  as  the  electrical  industry,  the  cot- 
tonseed oil  industry  and  the  phonograph  industry,  have  devel- 
oped as  a  direct  result  of  effective,  continuous  research  work. 

But  the  huge  laboratories  of  our  greatest  business  concerns 
cannot  be  financed  by  smaller  manufacturers.  How  are  the 
thousands  of  smaller  business  enterprises  to  maintain  themselves 
in  competition?  They  must  keep  abreast  with  progress  or  perish 
after  a  long  period  of  futile  competition  of  a  type  which  injures 
the  industry  and  harms  the  reputation  of  the  product.  They 
must  constantly  strive  to  improve  their  products  and  their  proc- 
esses. The  only  sane  course  of  action  is  cooperation, — coopera- 
tion with  their  competitors  in  the  trade  organization  of  their 
industry,  and  cooperation  through  that  organization  with  the 
agencies  available  for  research  work. 

Numerous  associations  in  this  country  have  engaged  in 
research  activities  which  have  reduced  costs,  enlarged  demand, 
and  stimulated  progress  in  the  industry.  The  brick  manufac- 

6  "Industrial  Benefits  of  Research,"  Chas.  L.  Reese,  Chemical  Director, 
E.  I.  DuPont  de  Nemours  Company,  Cir.  18,  National  Research  Council, 
pp.  6,  11. 

7  "Industrial  Research,"  F.  B.  Jewett,  Chief  Engineer,  Western  Elec- 
tric Co.,  Bull.  4,  National  Research  Council. 

s  "Science  and  the  Industries,"  John  J.  Carty,  Vice-president,  Ameri- 
can Telephone  &  Telegraph  Co.,  Cir.  8,  National  Research  Council,  p.  4. 

»  H.  E.  Howe,  pamphlet  and  exhibit,  prepared  under  the  auspices  of 
the  National  Research  Council,  p.  16. 


106  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

turers  began  research,  work  on  a  small  scale  in  1898  and  even 
with  insignificant  expenditures  results  "of  the  utmost  financial 
value,  which  have  saved  thousands  of  dollars  in  losses  have  been 
obtained. ' ' 10  The  English  government  has  adopted  its  great 
plan  of  cooperative  research  through  associations  because  of  its 
recognition  of  the  value  of  wisely  conducted  research  in  increas- 
ing efficiency,  reducing  costs  and  enlarging  the  productivity  of 
the  nation.11 

Field  for  Cooperative  Industrial  Research. — The  field  for 
cooperative  research  is  almost  unlimited. 

Library. — One  of  the  simplest  activities,  not  only  of  great 
value  of  itself,  but  also  a  necessary  basis  for  any  economic  re- 
search program  is  the  establishment  of  a  complete  library  of  the 
technical  literature  of  the  world  as  it  relates  to  the  industry.12 
Theodore  N.  Vail  has  well  said  "By  carefully  avoiding  a  dupli- 
cation of  work  and  by  utilizing  all  that  pioneer  investigation 
has  done,  the  f ruitfulness  of  research  can  be  greatly  increased. ' ' 
In  the  trade  and  technical  publications  of  the  world,  there  is  a 
vast  accumulation  of  valuable  data,  setting  forth  the  successful 
and  unsuccessful  results  of  endless  researches  the  world  over. 
This  fund  of  information  is  practically  lost  to  the  world,  be- 
cause of  lack  of  adequate  digests  and  indexes.  Costly  research 
work  often  doomed  to  failure,  is  being  constantly  duplicated  as 
a  result.  The  mere  collection,  codification,  and  distribution  of 
such  data,  as  it  relates  to  a  particular  industry  would  be  of  tre- 
mendous value.  It  would  substitute  the  knowledge  of  the  world 
for  the  knowledge  of  the  individual  manufacturer.  It  would 
furnish  the  starting  point  for  the  research  work  of  the  industry. 
The  Alloys  Eesearch  Association,  working  with  the  National 
Eesearch  Council,  is  now  accumulating  a  complete  library  of 
metallurgical  literature  of  the  world,  which  is  being  completely 

10  Address,  Edward  Ortman,  Jr.,  Twenty-seventh  Annual  Convention, 
National  Brick  Mfrs'.  Assn.,  March  5,  1913. 

11  Report,  Committee  of  the  Privy  Council  for  Scientific  and  Industrial 
Research,  1920-21,  pp.  13-34. 

12  "Organization  of  Industrial  Research,"  Arthur  D.  Little,  Proceed- 
ings, American  Society  for  Testing  Materials,  vol.  18,  Part  II,  1918.     Re- 
print:   "Topical  Discussion  of  Cooperation  in  Industrial  Research,"  Na- 
tional Research  Council,  p.  24. 


INDUSTRIAL  RESEARCH  107 

indexed.  Abstracts  of  valuable  articles,  photomicrographs,  dia- 
grams and  tables,  are  prepared  for  the  members  of  the  associa- 
tions so  that  members  may  be  promptly  supplied  with  all  exist- 
ing information  relating  to  any  phase  of  the  subject,  and  thus 
keep  abreast  with  the  latest  technical  developments.  The  whole 
plan  is  being  worked  out  in  cooperation  with  the  American  In- 
stitute of  Mining  and  Metallurgical  Engineers.13  One  of  the 
activities  of  the  proposed  American  Dairy  Research  Institute, 
to  be  operated  by  ice  cream  manufacturers  and  milk  distribu- 
tors, is  to  establish  a  library  of  the  dairy  literature  of  the  world 
for  the  use  of  members.14 

One  of  the  most  important  purposes  of  research,  from  the 
standpoint  of  direct  benefit  to  an  industry,  is  to  eliminate  waste.15 
Research  directed  toward  this  end  may  take  varied  forms. 

Utilization  of  By-products. — It  may  be  focused  on  a  more  ef- 
fective utilization  of  by-products.  The  comparatively  recent 
growth  of  great  industries,  such  as  the  dye  industry,  the  cotton 
seed  oil  industry,  the  vegetable  oil  and  margarine  industry,  the 
fiber  container  industry,  and  many  others,  which  have  been  de- 
veloped almost  entirely  on  the  utilization  of  waste  by-products 
emphasizes  the  possibilities.  The  degree  of  waste  in  many  in- 
dustries due  to  an  incomplete  utilization  of  the  raw  material  is 
appalling.  Eighty  per  cent  or  more  of  the  total  value  of  the 
trees  of  our  forests,  exclusive  of  roots,  small  branches,  twigs, 
fruits  and  foliage,  is  waste,  a  considerable  part  of  which  is 
avoidable.16  One  engineer  reports  that  the  value  of  products 
recoverable  from  the  waste  from  cut-over  timber  lands  of  the 
south  amounts  to  nearly  $700  per  acre.17  One  of  the  most  im- 

13  See  pamphlet,  "Alloys  Eesearch  Association,"  published  by  National 
Research  Council. 

I*  Report,  Laboratory  Committee,  Proceedings,  National  Assn.  of  Ice 
Cream  Mfrs.,  1921. 

is  A  comprehensive  study  of  the  many  forms  of  waste  in  typical  in- 
dustries is  presented  in  the  report  of  the  Committee  on  Elimination  of 
Waste  in  Industry  of  the  Federated  American  Engineering  Societies,  en- 
titled "Waste  in  Industry,"  McGraw-Hill  Book  Co. 

is  "Utilization  vs  Elimination  of  Wood  Waste,"  Arthur  T.  Upson, 
Forest  Products  Laboratory,  Southern  Lumberman,  Dec.  17,  1921,  p.  15. 

i?  "A  Potential  Industrial  Empire,"  Joseph  H.  Wallace,  Southern 
Lumberman,  Dec.  17,  1921,  p.  123. 


108  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

portant  phases  of  the  research  work  of  the  Forest  Products 
Laboratory,  conducted  in  cooperation  with  numerous  associa- 
tions of  the  lumber  industry,  is  directed  toward  the  utilization 
of  waste  materials.  It  has  worked  out  numerous  uses  for  wood 
waste  and  by  establishing  contact  between  possible  users  and 
the  sources  of  supply  is  doing  work  of  benefit  to  the  lumber 
industry.18  Through  the  cooperative  efforts  of  the  Interstate 
Cotton  Seed  Crushers,  working  with  various  research  agencies, 
the  commercial  use  of  cotton  linters  for  the  manufacture  of 
paper  has  been  successfully  developed. 

Improvement  of  Processes. — The  improvement  of  processes 
through  research  may  also  aid  in  the  prevention  of  waste.  The 
research  laboratory  of  the  DuPont  Company,  during  the  first 
year  of  its  existence,  developed  a  method  for  greatly  reducing 
the  time  required  for  separating  nitro-glycerine  from  the  waste 
acids,  which  not  only  was  worth  at  least  a  million  dollars  to  the 
company,  but  also  greatly  increased  the  safety  of  the  opera- 
tion.19 The  Laundry  Owners'  National  Association,  with  the 
assistance  of  the  Mellon  Institute,  has  been  developing  improved 
power  laundry  methods  which  are  being  made  available  to  the 
entire  industry  on  the  theory  that  the  larger  plants  suffer  from 
the  ill-will  created  by  inefficient  methods  of  poorly  managed 
plants.20  The  Technical  Association  of  the  Paper  and  Pulp  In- 
dustry is  devoting  a  considerable  part  of  its  work  to  the  im- 
provement of  mill  engineering  and  processes  of  paper  making.21 
Improved  methods  of  turpentining  developed  by  the  Forest 
Products  Laboratory,  it  is  estimated,  has  effected  a  saving  of 
$4,000,000  a  year.22  The  manufacturers  of  glass  containers  are 
conducting  experiments  with  processes  of  sterilization,  pasteuri- 
zation, and  so  on,  to  determine  the  most  efficient  methods  of 

is  "Utilization  vs  Elimination  of  Wood  Waste,"  Arthur  T.  Upson, 
Forest  Products  Laboratory,  Southern  Lumberman,  Dec.  17,  1921,  p.  157; 
see  also  Technical  Notes  published  by  Forest  Products  Laboratory. 

is  "Industrial  Benefits  of  Research,"  Chas.  L.  Reese,  Circular  18,  Na- 
tional Research  Council,  p.  4. 

20  "The  Laundry  Chemist  and  The  Pure  Fabric  Law,"  H.  G.  Elledge, 
Chemical  Age,  May,  1920. 

21  Letter,  Wm.  C.  MacNaughton,  Secy-Treas.,  Nov.  30,  1921. 

22  "Industrial  Scientific  Research  in  the  Forest  Products  Laboratory," 
published  by  the  Forest  Products  Laboratory,  1920,  p.  16. 


INDUSTRIAL  RESEARCH  109 

packing.23  The  Container  Club  is  devoting  considerable  re- 
search work  to  the  improvement  of  fiber  containers  and  the  de- 
signing of  improved  containers  for  new  commodities.24 

Determination  of  Properties. — Again,  research  may  be  em- 
ployed to  determine  the  quality  and  characteristics  of  a  particu- 
lar product  and  thus  avoid  wasteful  uses.  The  work  of  the  For- 
est Products  Laboratory  on  the  mechanical  properties  of  wood 
has  permitted  a  20  per  cent  increase  in  allowable  working 
stresses  in  structural  timbers,  making  possible  a  saving  of  $40,- 
000,000  annually  through  a  more  economic  use  of  timbers  in 
construction  work.25  The  research  work  of  the  Magnesia  Asso- 
ciation of  America  at  the  Mellon  Institute  is  in  part  devoted  to 
a  determination  of  the  most  economic  use  of  material  for  heat 
insulation.26 

Reduction  Transportation  Wastes. — The  elimination  of  waste 
in  transportation  is  also  engrossing  the  attention  of  research 
departments  of  many  organizations.  Losses  resulting  from  in- 
efficient packing,  from  improper  handling,  from  unnecessary 
consumption  of  space,  reach  huge  totals.  The  class  "I"  roads 
of  the  United  States  in  1919  paid  out  $106,804,861  for  loss  and 
damage  to  freight.27  The  daily  loss  of  shippers  and  manufac- 
turers is  estimated  by  the  Forest  Products  Laboratory  to  amount 
to  $500,000,  due  to  poor  packing  and  to  expensive  and  improp- 
erly designed  containers  for  all  classes  of  domestic  and  foreign 
shipments.28  In  1915,  the  laboratory  cooperating  with  the  Na- 
tional Association  of  Box  Manufacturers  and  the  National 
Wholesale  Grocers'  Association,  instituted  a  program  of  re- 

23  Letter,  A.  W.  Bitting,  Director  of  Research,  Glass  Container  Assn., 
June  24,  1921. 

24  "Industrial  Research  in  the  Fibre  Container  Industry,"  J.  D.  Mal- 
colmson,  Chemical  Age,  September,  1920. 

25  "Industrial  Scientific  Research  at  the  Forest  Products  Laboratory," 
published  by  Forest  Products  Laboratory,  1920,  p.  14. 

26  "Industrial  Research  at  Mellon  Institute,"  Wallace  Savage,  Chemi- 
cal and  Metallurgical  Engineering,  Feb.  11,  1920.     The  Refractories  Mfrs'. 
Assn.  is  likewise  working  out,  through  scientific  experiments,  the  proper 
specifications  for  refractories. 

27  Traffic  World,  vol.  27,  No.  2,  p.  69. 

28  Leaflet,    Boxing    and    Crating    Training    Course,    Forest    Products 
Laboratory. 


110  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

search  and  mechanical  tests  to  improve  containers  then  in  use. 
This  work  has  resulted  in  the  redesigning  of  containers,  giving 
increased  strength,  decreased  use  of  materials,  decrease  in  cubic 
contents,  security  against  pilferage,  reduced  labor  and  cost  of 
manufacture,  decreased  transportation  cost  and  has  permitted 
improved  methods  of  handling  freight.25*  The  work  of  the 
laboratory  along  this  line  saved  the  Government  millions  of 
dollars  during  the  War.  The  redesigning  of  a  container  for 
saddle  soap  alone  saved  the  Government  $414,000  in  freight 
charges  on  the  first  shipment  and  the  use  of  the  containers  de- 
signed by  the  laboratory  reduced  the  loss  caused  by  breakage 
and  box  failures  on  shipments  to  Europe  to  15  per  cent  of  what 
it  had  been  previously.30  It  is  estimated  that  an  average  saving 
of  35  per  cent  can  be  made  on  all  package  shipping.31  The 
Bureau  of  Industrial  Research,  which  worked  with  the  Forest 
Products  Laboratory  and  other  organizations,  during  the  war, 
estimates  that  millions  of  dollars  were  saved  in  packing  ma- 
terials and  many  more  millions  of  valuable  tonnage  and  cargo 
space  conserved  by  the  development  of  improved  containers.32 
The  Glass  Container  Association  is  making  a  study  of  packing 
to  reduce  breakage  and  conserve  space.33  The  American  Asso- 
ciation of  Ice  and  Refrigeration  and  the  American  Railway  Per- 
ishable Freight  Association,  are  investigating  packing  methods, 
causes  of  diseases  of  fruits  and  vegetables,  causes  of  loss  in 
transit,  and  best  methods  of  refrigeration,  in  order  to  lessen 
the  heavy  loss  or  deterioration  of  perishable  commodities  in 
transportation.34 

Standardization. — Research  may  be,   and   often   is,   a  pre- 
requisite to  the  standardization  of  products,  materials,  equip- 


so  "What  We  Learned  About  Wood,"  Anthony  M.  Rood,  reprint  from 
Saturday  Evening  Post,  published  by  Curtis  Publishing  Company. 

si  Ibid. 

32  Official  U.  S.  Bulletin,  January  22,  1919. 

S3  Letter,  A.  W.  Bitting,  Director  of  Research,  June  24,  1921. 

8*  See  Circular  JflS  A,  American  Railway  Perishable  Freight  Assn., 
Feb.,  1918;  also  Information  Bulletins,  American  Assn.  of  Ice  and  Refrig- 
eration. 


INDUSTRIAL  RESEARCH  111 

ment  and  performance,  the  value  of  which  was  discussed  in  the 
preceding  chapter. 

Labor. — Industrial  research  as  it  affects  personnel  may  be  of 
great  importance  to  an  industry.  The  high  labor  turnover,  the 
assignment  of  men  to  jobs  for  which  they  are  not  fitted,  the 
conditions  of  work,  unemployment,  wage  payment,  union  regu- 
lations, and  what  not,  are  productive  of  tremendous  wastes.35 
There  has  recently  been  organized  the  Personnel  Research  Fed- 
eration, consisting  of  such  organizations  as  the  National  Re- 
search Council,  the  American  Federation  of  Labor,  the  Engi- 
neering Foundation,  federal  government  bureaus,  leading  uni- 
versities and  many  of  our  largest  corporations,  to  study  the 
wastage  due  to  maladjustments  of  workers  to  their  task,  unde- 
sirable working  conditions,  unemployment,  and  the  like,  which 
are  causing  vast  economic  and  social  loss.36  At  the  conference 
at  which  this  federation  was  organized,  Samuel  Gompers  placed 
labor  on  record  as  recognizing  the  great  value  of  research  of 
this  character,  provided  it  were  not  directed  merely  toward  the 
speeding  up  of  the  workmen. 

Improvement  of  Quality. — Again,  technical  research  is  nec- 
essary to  the  steady  improvement  of  the  quality  of  the  product. 
Better  quality  is  usually  secured  only  as  a  result  of  continuous 
experimentation.  The  National  Canners'  Association  has  for 
some  years  conducted  extensive  research  work  on  the  problems 
affecting  the  quality  of  canned  goods  with  substantial  results.37 
The  Metal  Ware  Manufacturers'  Association  of  America  is 
working  with  the  Bureau  of  Standards  to  discover  effective 
means  of  correcting  certain  defects  in  their  products.38  In  fact 
a  number  of  associations  could  be  named  whose  research  work 
is  directed  in  part  toward  the  improvement  in  quality. 

35  See  "Waste  in  Industry,"  by  Committee  on  Elimination  of  Waste 
in  Industry  of  the  Federated  American  Engineering  Societies,  pp.  13,  26, 
79,  82,  158,  Chaps.  11  to  14  and  16. 

36  Leaflet,  Personnel  Research  Federation,  August,  1921,  issued  by  the 
National  Research  Council. 

37  See,  Bulletin,  Research  Laboratory,  National  Canners'  Assn. 

ss  Annual  Report,  Director,  Bureau  of  Standards,  1920,  Misc.  Publica- 
tion 44,  p.  260. 


112  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Improvement  of  Equipment. — The  development  of  more  ef- 
ficient equipment  can  also  be  made  a  problem  for  solution 
through  common  effort  by  a  cooperative  research  organization.39 
More  than  one  industry  is  working  with  antiquated  equipment 
merely  because  the  attention  of  the  industry  has  not  been 
focused  by  united  action  on  the  development  of  better  ma- 
chinery. 

Development  of  New  Uses. — Still  another  important  func- 
tion of  research  work  is  to  develop  new  uses  for  a  product, 
thereby  making  possible  an  enlargement  of  demand  to  the  com- 
mon benefit  of  the  public  and  of  the  industry.  The  Gypsum  In- 
dustry Association,  for  example,  is  maintaining  fellowships  at 
five  universities  and  colleges,  for  investigation  as  to  the  value 
of  gypsum  in  improving  soil  and  maintaining  its  fertility.40 
The  manufacturers  of  cement,  of  lumber,  of  brick  and  of  lime, 
are  making  a  constant  study  to  develop  new  uses  to  which  their 
commodities  can  be  put. 

Improvement  Methods  of  Use. — A  closely  analogous  use  of 
research  is  to  devek>p  better  methods  of  use  of  the  product  by 
the  consumer.  The  coffee  roasters  are  conducting  experiments 
at  the  Massachusetts  Institute  of  Technology  designed  to  dis- 
cover the  best  method  for  the  preparation  of  coffee  in  the  home.41 

Protection  Against  Fraud. — An  industry  may  also  find  its 
research  organization  of  value  by  making  its  service  available 
to  the  individual  members  for  the  analysis  of  raw  materials, 
purchased  by  them,  thus  protecting  them  against  fraud.  The 
research  laboratory  employed  by  the  Container  Club  and  by 
the  Laundry  Owners'  Association,  perform  this  service  for  the 
members  of  these  associations.42  Effective  work  may  be  done  in 
bringing  about  the  standardization  of  quality  of  raw  materials.43 
Or  such  work  may  be  of  great  value  to  an  association  in  bringing 

ss  Much  attention  is  being  given  this  subject  by  the  American  Assn. 
of  Refrigeration;  see  Proceedings,  Sixth  Annual  Meeting,  1916,  pp.  95,  151. 

40  Letter,  H.  H.  MacDonald,  Secretary,  July  13,  1921. 

41  The  Spice  Mill,  Nov.,  1921,  p.  1934. 

42  "Industrial  Research  in  the  Fibre  Container  Industry,"  J.  D.  Mal- 
colmson,  Chemical  Age,  September,  1920;  "The  Laundry  Chemist  and  the 
Pure  Fabric  Law,"  H.  C.  Elledge,  Chemical  Age,  May,  1920. 

43  Monthly  Digest,  National  Varnish  Mfrs'.  Assn.,  December,  1920,  p.  2. 


INDUSTRIAL  RESEARCH  113 

about  the  discovery  of  new  raw  materials  as  substitutes  for  those 
of  which  there  is  a  shortage.44 

Protection  of  Good  Will. — Research  may  also  be  a  real  factor 
in  preserving  good-will.  The  widespread  adulteration  of  tex- 
tiles, has  added  many  difficulties  to  the  operation  of  power  laun- 
dries. Many  claims  for  damage,  due  entirely  to  the  quality 
of  the  textile  or  the  use  given  it  by  the  owner,  are  constantly 
being  made.  A  refusal  to  pay  such  claim  without  clearly  estab- 
lishing the  responsibility  for  the  damage  antagonizes  customers. 
The  laundry  owners  therefore  have  utilized  their  research  lab- 
oratories for  making  tests  in  such  instances,  in  order  that  con- 
vincing proof  may  be  given  the  customer  as  to  who  is  really 
responsible  for  the  damage.  Many  cases  of  adulteration  of 
fabrics,  sales  of  seconds  as  firsts,  defective  weaves,  etc.,  are  thus 
discovered  and  the  blame  placed  where  it  belongs.45  The  coffee 
roasters,  as  has  already  been  described,  are  conducting  investi- 
gation at  the  Massachusetts  Institute  of  Technology,  with  ref- 
erence to  the  properties  of  caffeine  with  the  idea  of  correcting 
existing  misconceptions  in  the  public  mind  which  tends  to  pre- 
vent a  larger  sale  of  coffee.  The  shingle  manufacturers  and  the 
cotton  seed  crushers  have  carried  on  research  work  for  a  similar 
purpose.46 

Research  Methods. — The  trade  association  entering  upon  a 
program  of  cooperative  research,  has  a  variety  of  methods  and 
agencies  through  which  to  continue  its  work. 

Papers  and  Discussions. — The  simplest  method  is  merely  to 
assign  a  considerable  portion  of  the  program  at  its  regular  meet- 
ings to  the  presentation  and  discussion  of  papers  on  research 
problems  by  individual  members.  The  papers  presented  at  the 
meetings  of  the  American  Iron  &  Steel  Institute  are  a  perma- 

44  Report  of  Scientific  Section,  Educational  Bureau,  Paint  Mfrs'.  Assn. 
of  the  U.  S.,  1920,  p.  5. 

45  "The  Laundry  Chemist  and  the  Pure  Fabric  Law,"  H.  G.  Elledge, 
Chemical  Age,  May,  1920;  "The  Conservation  of  Textiles"  by  H.  H.  Elledge 
and    Alice    L.    Warefield,    published    by    Laundry    Owners'    Natl.    Assn., 
pp.  5-7. 

46  J.  H.  Eddy,  Second  Annual  Meeting,  Southern  Pine  Assn.,  p.  177; 
Jo.  W.  Allison,  Nineteenth  Annual  Session,  Interstate  Cotton  Seed  Crush- 
ers' Assn.,  1915,  p.  96. 


114  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

nently  valuable  addition  to  the  literature  of  the  industry.47  The 
cotton  manufacturers  devote  a  large  part  of  their  regular  meet- 
ings to  technical  papers,  awarding  a  medal  each  year  to  the 
person  whose  paper  represents  the  greatest  contribution  toward 
the  improvement  of  cotton  manufacture.48  It  is  felt  that  the 
reading  of  papers  before  the  association  where  they  are  subject 
to  challenge  and  discussion  is  very  helpful.  The  drug  manu- 
facturers have  organized  their  research  work  under  the  direc- 
tion of  a  Central  Control  Committee  which  lays  out  the  program 
under  which  nineteen  sub-committees  conduct  research  work  on 
special  problems  and  classes  of  drugs.49  This  method,  while  it 
is  inexpensive,  has  grave  defects.  Research  under  this  method 
usually  lacks  force,  direction,  and  continuity,  and  permits  of 
the  concealment  of  important  discoveries  made  in  the  labora- 
tory of  an  individual  member. 

Subsidiary  Associations. — Again,  a  subsidiary  association  or 
an  independent  association  may  be  organized  to  confine  its  ac- 
tivities exclusively  to  research  work.  The  paper  and  pulp  in- 
dustry has  organized  such  an  association  which  is  engaged  in 
research  in  mill  engineering  and  chemistry  of  paper.  It  has  not 
only  published  a  number  of  papers  and  books  on  the  principles 
and  processes  of  paper  and  pulp  manufacture,  but  has  also  co- 
operated with  various  Governmental  Agencies  in  research  work 
of  value.50  Its  work  is  recognized  by  the  parent  association  of 
manufacturers  as  laying  a  foundation  of  correct  knowledge 
sorely  needed  in  this  industry.51  The  American  Oil  Chemists* 
Society,  an  independent  organization  closely  affiliated  with  the 

47  See  Yearbook,  American  Iron  &  Steel  Institute,  1916. 

48  Transactions,  National  Assn.   of   Cotton  Mfrs.,    1916,   p.   71.     This 
method  is  employed  by  the  following  associations,  among  others;   see  Na- 
tional Assn.  of  Ice  Cream  Mfrs.,  Proceedings,  1919;  American  Assn.  of  Re- 
frigeration, Proceedings,  1919;   National  Brick  Mfrs'.  Asso.,  Proceedings, 
Thirty-second    Annual    Convention,    1918;    American    Railway    Bridge    & 
Building   Assn.,    Proceedings,    Twenty-seventh    Annual    Convention,    1917; 
American  Mining  Congress,  Proceedings,  1919. 

49  Proceedings,  Seventh  Annual,  American  Drug  Mfrs'.  Assn.,  p.  80. 

50  Letter,  Wm.  C.  MacNaughton,  Secy.-Treas.,  Technical  Association  of 
the  Pulp  and  Paper  Industry,  Nov.  30,  1921. 

siGeo.  W.  Sisson,  Jr.,  President,  American  Paper  and  Pulp  Assn., 
Forty-second  Annual  Meeting,  Feb.  6,  1919. 


INDUSTRIAL  RESEARCH  115 

Interstate  Cotton  Seed  Crushers'  Association,  has  developed  im- 
portant methods  of  edible  oil  refining  and  of  converting  former 
wastes  into  profitable  products,  the  research  work  being  con- 
ducted in  the  laboratories  of  individual  members.52  The  Ameri- 
can Ceramic  Society  originally  formed  from  the  membership 
of  the  National  Brick  Manufacturers7  Association,  has  developed 
into  a  great  organization  of  international  reputation,  which  has 
developed  by  far  the  largest  fund  of  technical  information  on 
clay  in  the  English  language.53 

The  producers  and  users  of  metals  and  alloys,  working  with 
the  National  Research  Council,  have  organized  the  Alloys  Re- 
search Association,  which  is  compiling  the  scientific  literature  of 
the  world  on  subjects  of  direct  interest  to  the  members,  with  the 
purpose  of  later  engaging  also  in  technical  research  into  funda- 
mental questions  affecting  these  products.54 

Commercial  Laboratories. — Another  mode  of  procedure  is  to 
employ  the  services  of  a  commercial  laboratory.  There  are  sev- 
eral large  commercial  laboratories  experienced  in  industrial  re- 
search, which  are  adequately  equipped  and  efficiently  super- 
vised.55 

Cooperation  with  Educational  Institutions. — A  third  method 
of  conducting  research  work  is  through  the  universities  and 
technical  schools.  Some  of  our  schools  possess  magnificent  lab- 
oratories and  faculties,  whose  members  are  scientists  of  the 
highest  standing.  Graduate  students  working  under  the  super- 
vision of  scientists  of  established  reputation,  in  intimate  con- 
tact with  the  industry  through  the  research  committee  of  an 
association,  have  made  practical  contributions  to  American  in- 
dustry. The  Portland  Cement  Association  conducts  research 
work  in  the  properties  of  concrete  and  concrete  materials  at 

52  Letter,  Thos.  B.  Caldwell,  Secy.-Treas.,  American  Oil  Chemists'  So- 
ciety, Nov.  23,  1921. 

ss  Address,  Edward  Orton,  Twenty-seventh  Annual  Convention,  Na- 
tional Brick  Mfrs'.  Assn.,  March  5,  1913. 

54  Pamphlet,  Alloys  Research  Association,  published  by  National  Re- 
search Council,  November,  1920. 

55  For  a  list  of  commercial  and  other  laboratories  doing  industrial  re- 
search; see  Topical  Discussion  on  Cooperation  in  Industrial  Research,  Pro- 
ceedings, American  Society  for  Testing  Materials,  vol.  18,  Part  II,  1918,  re- 
printed by  National  Research  Council. 


116  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  Lewis  Institute.  The  control  of  the  laboratory  policy  is  in 
the  hands  of  a  committee  of  four,  consisting  of  two  professors 
of  the  Lewis  Institute  and  two  representatives  of  the  Association, 
the  research  work  being  carried  on  by  a  staff  of  engineers  and 
chemists  devoting  their  entire  time  to  this  work.56  The  Laundry 
Owners'  National  Association,  the  Container  Club,  the  Refrac- 
tories Manufacturers'  Association,  the  Magnesia  Association  of 
America,  the  Leather  Belting  Exchange,  and  other  associations, 
have  for  several  years  conducted  research  work  of  the  most 
varied  kind  at  Mellon  Institute,  a  great  scientific  laboratory.57 
Some  165  patents  have  been  secured  as  well  as  more  general 
benefits  obtained,  as  a  result  of  research  work  at  this  institu- 
tion.58 The  Coffee  Boasters'  Association  are  utilizing  the  re- 
search laboratory  of  the  Massachusetts  Institute  of  Technology, 
in  carrying  on  research  work  on  the  physiological  effects  of  caf- 
feine, proper  methods  of  preparing  coffee  and  so  on.59 

The  Tanners'  Council  of  the  United  States  has  begun  research 
work  at  the  University  of  Cincinnati  to  improve  present  meth- 
ods of  tannery  operation.60 

The  Department  of  Mechanical  Engineering,  of  the  Uni- 
versity of  Illinois,  is  conducting  special  research  work  in  co- 
operation with  the  National  Warm  Air  Heating  and  Ventilating 

56  Bull.   2,   Structural   Materials,   Research   Laboratory,   Lewis   Insti- 
tute, May,  1919. 

57  "Industrial  Research  in  the  Fibre  Container  Industry,"  J.  D.  Mal- 
colmson,  Chemical  Age,  September,  1920;   "Industrial  Research  at  Mellon 
Institute,"  Wallace  Savage,  Chemical  and  Metallurgical  Engineering,  Feb. 
11,  1920. 

ss  Eighth  Annual  Report,  on  Industrial  Fellowship  of  the  Mellon  In- 
stitute, 1921,  p.  14. 

59  The  Spice  Mill,  November,  1921,  p.  1934.  At  this  institution  the 
method  of  handling  research  work  is  as  follows:  A  contract  is  made  to 
place  a  certain  man  or  men  on  a  certain  problem  for  a  specified  period, 
usually  one  year.  The  Association  pays  the  laboratory  approximately 
twice  the  total  cost  of  the  man  engaged  directly  on  the  work,  pays  his  nec- 
essary traveling  expenses  and  the  cost  of  any  extraordinary  apparatus. 
The  laboratory  assumes  the  cost  of  all  ordinary  chemical  expenses,  ap- 
paratus, supervision  and  overhead  charges.  All  data,  results,  or  patents, 
resulting  from  the  work  belong  to  the  Association;  Letter,  Robert  E. 
Wilson,  Director  to  J.  K.  Jessup,  Jessup  Mfg.  Co.,  June  7,  1921. 

*>8hoe  and  Leather  Reporter,  Jan.  5,  1922,  p.  41. 


INDUSTRIAL  RESEARCH  117 

Association,  the  work  being  financed  by  the  Association.61  Un- 
der the  agreement  made  with  the  University,  the  Association 
pays  $8,000  per  annum,  the  University  agreeing  to  furnish  two 
full  time  and  one  one-half  time  assistant,  and  the  supervision  of 
its  engineering  faculty.  An  advisory  committee  of  the  Associa- 
tion, with  the  professors  of  the  engineering  station,  determine 
upon  the  general  program  to  be  carried  on.  A  number  of  asso- 
ciations maintain  fellowships  at  various  Universities.62  There 
are  some  very  substantial  advantages  in  utilizing  the  services 
of  our  technical  institutions  for  research  work.  The  cost  of  con- 
ducting work  in  this  manner  involves  much  less  expense  than 
the  maintenance  of  a  laboratory.  In  addition,  the  large  equip- 
ment, the  library  facilities  and  the  supervision  of  trained  scien- 
tists, who  are  members  of  the  faculty,  are  secured  at  a  nominal 
cost.  Finally,  a  closer  relationship  between  the  educational  in- 
stitutions and  industries  in  work  of  this  character  will  aid 
greatly  in  the  training  of  high-class  research  men,  and  greatly 
improve  the  quality  of  technical  men  entering  our  industries 
from  our  Universities  and  Colleges. 

Cooperation  with  Government  Departments. — Still  another 
method  is  cooperation  with  one  of  the  various  Governmental 
Bureaus,  such  as,  the  Bureau  of  Standards,  the  Bureau  of 
Chemistry,  or  the  Forest  Products  Laboratory.  These  organi- 
zations do  research  work  of  an  extensive  character.  The  Bureau 
of  Chemistry,  of  the  Department  of  Agriculture,  has,  at  differ- 
ent times,  cooperated  with  various  industries  in  varied  research 
work,  such  as,  the  development  of  a  water  resistant  fiber  con- 
tainer, the  utilization  of  certain  fruit  by-products,  the  deter- 


ei  "Report  of  Progress  in  Warm  Air  Furnace  Research,"  A.  C.  Willard, 
Bull.  112,  Engineering  Experimental  Station,  University  of  Illinois,  May 
19,  1919. 

62  The  following  associations  have  research  arrangements  with  the  fol- 
lowing institutions:  Assn.  of  Mfrs.  of  Chilled  Car  Wheels,  University  of 
Illinois;  National  Pickle  Packers'  Assn.,  University  of  Wisconsin; 
Hawaiian  Pineapple  Packers'  Assn.,  University  of  Hawaii;  Olive  Assn., 
Leland  Stanford,  Jr.,  University;  Letter,  Robt.  M.  Yerkes,  Information 
Service  National  Research  Council,  March  19,  1920.  The  Gypsum  In- 
dustry Assn.  finances  five  fellowships  at  state  institutions.  Letter,  H.  H. 
MacDonald,  Secretary,  July  13,  1921. 


118  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

mination  of  tin  plate  best  fitted  for  food  containers,  and  so  on.63 
Investigations  of  refrigeration  problems  have  also  been  made  by 
the  Bureau  of  Plant  Industry  of  that  department.64  The 
Bureau  of  Standards,  of  the  Department  of  Commerce,  for 
years  has  carried  on  with  many  of  the  trade  associations  of  the 
country  cooperative  research  work  of  enormous  value.65 

The  Bureau,  during  the  war,  secured  large  appropriations 
for  research  work  and  made  great  contributions  aiding  in  the 
successful  prosecution  of  the  war.  As  a  result,  it  greatly  en- 
larged its  facilities  until  now  it  is  one  of  the  great  research 
laboratories  of  the  world. 

The  Forest  Products  Laboratory,  of  the  Foresty  Service,  is 
another  great  governmental  organization  cooperating  with  our 
industries,  particularly  with  the  lumber  and  wood-using  indus- 
tries of  the  country.  The  laboratory  has  acquired,  through 
years  of  research,  a  wealth  of  data  on  the  quality  and  uses  of 
woods  and  has  done  work  of  the  greatest  value  designed  to 
secure  a  more  economic  utilization  of  our  forests.  It  is  con- 
ducting research  work  in  kiln  drying,  wood  preservation,  pulp 

63  Annual  Report,  Bureau  of  Chemistry,  February,  1918,  p.  16;  ibid., 
1919,  pp.  13,  20. 

e*  Sixth  Annual  Meeting,  American  Assn.  of  Refrigeration,  1916, 
p.  95. 

es  In  1920,  for  example,  to  mention  only  a  part  of  the  research  work 
of  this  great  laboratory,  the  Bureau  conducted  research  work  with  the 
American  Railroad  Assn.  on  railroad  signal  batteries,  with  the  National 
Electric  Light  Assn.,  and  the  American  Gas  Assn.  in  the  forir  jlatior  of 
safety  codes  in  these  industries,  with  the  Paint  Mfrs'.  Assn.  for  the  de  er- 
mination  of  specific  gravities  and  bulking  figures  of  pigments,  with  the 
Coated  Textile  Mfrs'.  Assn.  in  the  properties  of  artificial  leather,  with  the 
National  Assn.  of  Wool  Mfrs.  in  the  standardization  of  dye  stuffs,  and  the 
effects  of  blending  shoddy  or  cotton  with  virgin  wool,  with  the  U.  S. 
Potters'  Assn.  in  the  use  of  American  clays,  with  the  National  Terra  Cotta 
Assn.  in  testing  the  qualities  of  terra  cotta,  and  with  the  National  Metal 
Ware  Mfrs'.  Assn.  and  American  Ceramic  Society  on  defects  of  enamels 
for  sheet  steel;  "Annual  Report,"  Director,  Bureau  of  Standards,  1920, 
Miscellaneous  Publications  44,  pp.  57,  74,  87,  163,  209,  214,  256,  258 
and  260.  The  brick  manufacturers  secured  the  aid  of  the  Bureau  in 
determining  the  strength  developed  by  brick  piers.  The  cotton  seed 
crushers  have  elected  its  aid  in  the  determination  of  color  reading  of  cotton 
seed  oil.  Proceedings,  National  Brick  Mfrs'.  Assn.,  1918,  p.  61,  Twentieth 
Annual  Session  Interstate  Cotton  Seed  Crushers'  Assn.,  1917,  p. 


INDUSTRIAL  RESEARCH  119 

and  paper  manufacturing,  the  development  of  efficient  contain- 
ers, and  many  other  problems.  Its  study  of  water  resistant 
glues  and  plywood  for  aeroplanes  saved  the  Government  $6,000,- 
000  in  a  twelve-month  period,  and  the  present  total  annual  sav- 
ing to  industry,  resulting  directly  from  the  work  of  the  labora- 
tory, is  roughly  estimated  to  be  more  than  $30,000,000.66 

The  arguments  for  the  use  of  governmental  agencies  in  trade 
associations  research  work  are  its  economy,  its  impartiality,  and 
in  some  instances,  possibly  its  greater  efficiency.  In  some  in- 
stances, if  the  work  is  of  sufficient  importance  to  involve  the 
public  interest,  appropriations  may  be  secured  from  Congress 
to  conduct  such  work.  On  the  other  hand,  the  danger  involved 
in  the  use  of  governmental  agencies  is  that  results  secured  may 
be  used  for  purposes  of  regulation.  This  would  not  be  serious 
were  it  not  for  the  fact  that  some  divisions  of  the  government, 
in  the  past,  have  refused  to  recognize  the  practical  and  insur- 
mountable difficulties  of  factory  operation,  and  based  their 
regulations  entirely  upon  laboratory  experiments.  A  nar- 
row policy  of  this  kind  can  work  very  serious  hardship  on  an 
industry. 

Association  Research  Laboratories. — An  association  ade- 
quately financed,  if  it  so  desires,  may  maintain  a  research  lab- 
oratory of  its  own.  The  canners,  in  the  early  development  of 
their  industry,  were  confronted  with  grave  problems,  such  as 
spoilage,  faulty  color  of  food,  container  imperfections  and  de- 
fective machinery.  The  results  of  investigation  by  governmen- 
tal bureaus,  and  independent  laboratories,  emphasized  the  need 
of  more  extensive  research.  Individual  laboratories  in  the  in- 
dustry, it  was  recognized,  would  be  impracticable  and  wasteful. 
A  central  laboratory  was  therefore  created,  which  not  only  en- 
gaged in  research  work  of  a  varied  character,  but  also  cooper- 
ated with  other  laboratories  and  became  an  integral  part  of  a 
nationwide  inspection  system  which  the  association  has  devel- 
oped. Acting  in  cooperation  with  the  National  Research  Coun- 
cil, an  exhaustive  study  is  being  made  of  ptomaine  poisoning, 
under  the  direction  of  six  of  the  most  eminent  scientists  of  the 
country,  whose  services  could  not  have  been  secured  by  the  in- 

66  "Industrial  Scientific  Research  at  the  Forest  Products  Laboratory," 
published  by  the  Forest  Products  Laboratory,  1920,  p.  16, 


120  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

dustry,  except  through  the  agency  of  the  Council.67  The  Ameri- 
can Association  of  Creamery  Butter  Manufacturers  has  for 
years  maintained  a  laboratory  devoted  to  the  study  of  improved 
methods  of  handling  cream  and  better  methods  for  the  manufac- 
ture of  butter.  The  ice  cream  manufacturers  and  the  milk  dis- 
tributors are  now  organizing  a  joint  research  laboratory.68  A 
research  laboratory  of  this  character  has  certain  benefits.  It 
gives  to  the  industry  a  closer  control  of  the  research  program. 
Discoveries  made  may  be  preserved  for  the  confidential  use  of 
the  members  of  the  association,  who  pay  the  expenses  of  the 
laboratory  work.  The  danger  of  impractical  demands  being 
made  upon  the  industry  by  regulatory  bodies  is  also  in  a  meas- 
ure avoided  and  the  industry  afforded  an  agency  to  present 
comprehensive  scientific  data  in  opposing  ill-timed  regulations. 

Safeguards  Against  Failure. — The  experiences  of  associa- 
tions here  and  abroad  suggest  the  following  warnings  to  those 
organizing  the  research  plans  of  an  association : 

First,  the  work  should  be  financed  at  the  outset  for  a  period 
of  several  years.  The  largest  results  accruing  from  research  are 
often  the  slowest  to  be  achieved.  There  is  always  a  tendency 
for  members  to  be  discouraged,  particularly  when  they  are  only 
one-half  sold  on  the  value  of  such  work.69  The  research  organi- 
zation should  be  carefully  protected  from  outside  interference, 
and  purely  destructive  criticism,  even  though  their  work  re- 

67  "Cooperative  Research  in  the  Canning  Industry,"  Frank  E.  Gprrell, 
Secretary,    National    Canners'   Assn.,    Proceedings,    American    Society    for 
Testing  Materials,  vol.  18,  Part  II,  1918,  reprinted  in  pamphlet  form  by 
National  Research  Council. 

68  "Report  of  Laboratory  Committee,"  Proceedings,  National  Assn.  of 
Ice  Cream  Mfrs.,  1921 ;  other  associations  which  are  maintaining  research 
laboratories    are — The    American    Assn.    of    Woolen    and    Worsted    Mfrs., 
American    Gas    Inst.,    American    Paper    &    Pulp    Mfrs'.    Assn.,    Assn.    of 
Metal  Lath  Mfrs.,  Gypsum  Industries  Assn.,  National  Brick  Mfrs'.  Assn., 
National  Lime  Mfrs'.  Assn.,  Paint  Mfrs'.  Assn.  of  the  United  States,  Na- 
tional Electric  Lamp  Assn.,  and  Portland  Cement  Assn.;  "Development  of 
Existing  Agencies,"  Alfred  D.   Flynn,   Secy.   United   Engineering   Society, 
Engineering  Foundation,  Proceedings,  American   Society  for  Testing  Ma- 
terials, vol.  18,  Part  II,  1918,  published  in  pamphlet  form  by  National  Re- 
search Council,  p.  43. 

ea  See  Report  of  Committee  of  the  Privy  Council  for  Scientific  and  In^ 
dustrial  Research,  1920-21,  p.  15. 


INDUSTRIAL  RESEARCH  121 

mains  unremunerative  for  several  years.70  Results  from  re- 
search work  cannot  be  secured  in  the  same  manner  as  commodi- 
ties are  produced  in  a  factory. 

Second,  the  direction  of  the  scope  of  the  work  should  be 
controlled  by  the  industry  through  a  special  committee,  espe- 
cially qualified  for  such  work.  Government  control  or  the  con- 
trol of  scientists  may  lack  force  and  fail  to  give  the  practical 
results  the  business  man  demands.71 

Third,  an  initial  comprehensive  survey  of  the  field  of  pos- 
sible research  through  conferences  and  correspondence  with 
members  of  the  industry  and  technical  men  should  be  made, 
in  order  that  the  research  program  may  be  directed  into  the 
most  important  channels. 

Fourth,  a  comprehensive  library  of  the  literature  of  the 
world  on  the  subject  matter  affecting  the  industry  should  be 
gathered  so  that  needless  research  work  and  waste  of  funds 
may  be  avoided. 

Fifth,  there  should  be  an  insistence  that  a  considerable  por- 
tion of  the  work  be  directed  toward  fundamental  research  prob- 
lems. Such  work,  while  often  non-productive  of  results  for  a 
period  of  years,  can  suddenly  produce  results  which  may  revo- 
lutionize an  industry.72  The  real  progress  of  commerce  de- 
mands that  attention  should  not  be  given  solely  to  the  questions 
which  have  an  immediate  dollar  and  cents  value. 

Sixth,  as  much  publicity  as  possible,  consistent  with  the 
protection  of  the  interests  of  the  members,  should  be  given, 
in  order  to  secure  the  public  criticism  of  investigations,  which 
may  be  a  stimulus  to  progress.73 

Seventh,  it  is  desirable  for  the  association,  if  possible,  to 
do  research  work  for  individual  members  at  cost,  as  the  con- 
stant presentation  of  individual  problems  keeps  the  association 

TO  JOHN  C.  CURTIS,  "Scientific  Research  for  the  Linen  Trade,"  Wm. 
Strain  and  Sons,  Ltd.,  p.  51. 

71  See  Report  of  Committee  of  the  Privy  Council  for  Scientific  and  In- 
dustrial Research,  1916-17,  p.  49. 

72  Report  of   Privy   Council   for    Scientific   and    Industrial    Research, 
1920-21,  p.  33. 

73  Report    of    the    Council    Linen    Industry    Research    Assn.,    1921, 
p.  8. 


122  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

in  close  touch  with  the  difficulties  of  the  trade  and  helps  in  the 
selection  of  subjects  on  which  research  will  be  of  general  benefit 
to  the  industry.7* 

Finally,  provision  should  be  made  for  frequent  meetings  be- 
tween the  members  of  the  industry  and  those  conducting  the  re- 
search work  through  rotating  committees,  or  other  means,  in 
order  that  interest  may  be  maintained.75 

National  Research  Council. — In  1916,  a  great  national  re- 
search organization,  known  as  the  National  Research  Council, 
was  effected,  at  the  request  of  President  Wilson,  to  coordinate 
scientific  effort  with  the  war  program  of  the  government  and 
with  industry.76  It  was  comprised  of  the  chiefs  of  the  technical 
bureaus  of  the  Army  and  Navy,  the  heads  of  the  government 
bureaus  engaged  in  scientific  research  and  a  large  group,  rep- 
resenting educational  institutions,  research  foundations,  and 
representatives  of  industrial  and  engineering  societies.  Work- 
ing with  the  leading  engineering  and  scientific  organizations  of 
the  country,  the  Council  did  work  of  incalculable  value  during 
the  war.  Plans  have  been  effected  for  continuing  it  as  a  peace 
organization  and  some  of  our  largest  corporations  and  indus- 
tries have  contributed  substantially  to  its  support.  It  is  a  demo- 
cratic organization,  the  members  of  the  council  being  elected  by 
the  forty  great  engineering  societies,  which  in  turn  represent 
thousands  of  individual  members.  It  is  becoming  the  great 
national  clearing-house  for  scientific  information  regarding  re- 
search work  completed,  or  being  conducted  anywhere  in  the 
world.  It  is  working  to  coordinate  the  research  work  of  scien- 
tific research  organizations  and  industries.  It  proposes  also  to 
afford  the  means  whereby  the  scientists  of  the  country  may  co- 
operate in  an  advisory  way  with  industries  and  also  to  furnish 
an  agency  for  the  development  of  a  better  trained  research  per- 

7*  Report  of  Council  British  Research  Assn.  for  the  Woollen  &  Worsted 
Industry,  1921,  p.  3;  see  also  Prospectus,  British  Empire  Sugar  Research 
Assn.,  p.  10;  Report  of  Privy  Council  for  Scientific  &  Industrial  Research, 
1920-21,  p.  32. 

75  Report  of  Council  Linen  Industrial  Research  Assn.,  1920,  p.  8. 

76  Pamphlet,   National    Research    Council,   Divisions   and   Committees, 
1918;  published  by  National  Research  Council,  p.  3. 


INDUSTRIAL  RESEARCH  123 

sonnel.77  To  the  extent  its  plans  are  achieved,  this  organization 
promises  to  exercise  a  great  influence  on  the  industrial  future  of 
the  country  and  any  trade  association  planning  a  research  pro- 
gram should  investigate  the  possibilities  of  cooperation  with  it. 

Association  Research  in  Foreign  Countries. — The  impor- 
tance of  industrial  research  as  a  factor  in  maintaining  and  for- 
warding the  economic  position  of  nations  is  becoming  recognized 
the  world  over.  The  correlation  of  science  and  industry  in  Ger- 
many is  a  matter  of  common  knowledge.  The  Belgian  govern- 
ment is  establishing  a  Research  Institute  for  the  perfecting  of 
manufacturing  processes;  Czecho-Slovakia  is  creating  an  Acad- 
emy of  Labor,  the  chief  purpose  of  which  is  the  organization  of 
technical  work ;  Holland  is  carrying  on  industrial  research  work, 
under  the  direction  of  the  Department  of  Trade  of  the  Ministry 
of  Agriculture,  Industry  and  Trade,  and  Sweden  maintains  the 
Royal  Swedish  Academy  of  Engineering  Science,  which  receives 
financial  aid  from  the  government.78 

The  British  with  their  characteristic  thoroughness  have  or- 
ganized a  great  competitive  and  centralized  research  plan  for 
industries,  the  basic  purpose  of  which  is  to  advance  the  indus- 
trial interests  of  Great  Britain  in  foreign  trade.  The  govern- 
ment has  created  an  Imperial  Trust  for  the  Encouragement  of 
Scientific  and  Industrial  Research,  amounting  to  one  million 
pounds.79  This  fund  has  been  spent  during  the  past  few  years 
largely  through  grants  in  aid  of  research  undertaken  by  volun- 
tary associations  formed  for  such  purpose.  This  contribution  to 
the  assured  income  of  such  associations  furnished  through  sub- 
scriptions of  their  own  members  varies  in  amount  according  to 
circumstances  with  a  normal  maximum  of  pound  for  pound. 
Subscriptions  paid  by  members  are  recognized  by  the  govern- 
ment as  business  costs,  not  subject  to  income  or  excess-profits 

77  For  a  complete  statement  of  the  organization  and  purpose  of  this 
Council,  see  address  "The  Organization  of  Research,"  by  James  Rowland 
Angell,  Chairman,  National  Research  Council,  Journal  of  Proceedings  and 
Addresses,   of   the  Assn.   of   American   Universities,   Twenty-first   Annual 
Conference,  Nov.  7-8,  1919,  p.  39. 

78  Report  of  the  Privy  Council  for  Scientific  and  Industrial  Research, 
1920-21,  pp.  104-106. 

79  Report  of  Committee  of  the  Privy  Council  for  Scientific  and  In- 
dustrial Research,  1916-17,  p.  49. 


124  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

taxes.  It  is  expected  that  after  the  work  has  been  well  started, 
the  larger  industries  will  not  need  governmental  assistance.  At 
the  end  of  1921,  there  were  twenty-four  active  research  associa- 
tions in  Great  Britain  and  others  in  process  of  formation.80 
These  associations  are  most  carefully  organized  to  protect  the 
interests  of  the  British  trade  against  foreign  competition,  to  pro- 
tect the  rights  of  the  individual  members  and  to  correlate  gov- 
ernmental, scientific  and  industrial  efforts  in  research.  The  re- 
sponsibility for  the  prosecution  of  the  work  is  placed  on  the  in- 
dustries themselves,  to  avoid  chaining  the  efforts  of  the  indus- 
tries to  government  routine.  The  Report  of  the  Committee  of 
the  Privy  Council  for  Scientific  and  Industrial  Research  for 
1917  outlines  the  benefits  accruing  to  the  members  of  such 
organizations  in  the  following  language: — 

"It  is  anticipated  that  each  firm  subscribing  to  a  research  organisa- 
tion will  have  the  following  privileges : 

(1)  It  will  receive  a  regular  service  of  summarised  technical  informa- 
tion which  will  keep  it  abreast  of  the  technical  developments  in 
the  industry  at  home  and  abroad.     To  do  as  much  for  itself  any 
firm  would  have  to  employ  more  than  one  man  on  its  staff  read- 
ing and  translating  the  technical  press. 

(2)  It  will  be  able  to  obtain  a  translated  copy  of  any  foreign  article 
in  which  it  may  be  specially  interested  and  to  which  its  attention 
will  have  been  drawn  by  the  periodical  bulletin. 

so  Report  of  Committee  of  the  Privy  Council  for  Scientific  and  In- 
dustrial Research,  1920-21,  p.  106.  These  associations  were  the  British 
Shoe  &  Allied  Trades  Research  Assn.,  British  Cotton  Industry  Research 
Assn.,  British  Sugar  Research  Assn.,  British  Iron  Mfrs'.  Research  Assn., 
Research  Assn.  of  British  Motor  &  Allied  Mfrs.,  British  Photographic  Re- 
search Assn.,  British  Portland  Cement  Research  Assn.,  British  Research 
Assn.  for  the  Woollen  &  Worsted  Industries,  British  Scientific  Instrument 
Research  Assn.,  Research  Assn.  of  British  Rubber  &  Tyre  Mfrs.,  Linen  In- 
dustry Research  Assn.,  Glass  Research  Assn.,  British  Assn.  of  Research 
for  Cocoa,  Chocolate,  Sugar,  Confectionery  &  Jam  Trades,  British  Non- 
Ferrous  Metals'  Research  Assn.,  British  Refractories'  Research  Assn., 
Scottish  Shale  Oil  Scientific  &  Industrial  Research  Assn.,  British  Leather 
Trades'  Research  Assn.,  British  Launderers'  Research  Assn.,  British 
Electrical  and  Allied  Industries'  Research  Assn.,  British  Silk  Research 
Assn.,  British  Motorcycle  and  Cycle  Car  Assn.,  British  Cutlery  Research 
Assn.,  British  Music  Industries'  Research  Assn.  and  British  Cast  Iron  Re- 
search Assn. 


INDUSTRIAL  RESEARCH  125 

(3)  It  will  have  the  right  to  put  technical  questions  and  to  have 
them  answered  as  fully   as   possible   within   the  scope   of  the 
research  organisation  and  its  allied  associations. 

(4)  It  will  have  the  right  to  recommend  specific  subjects  for  research, 
and  if  the  Committee  or  Board  of  the  research  organisation  of 
that  industry  consider  the  recommendation  of  sufficient  general 
interest  and  importance,  the  research  will  be  carried  out  without 
further  cost  to  the  firm  making  the  recommendation,  and  the 
results  will  be  available  to  all  the  firms  in  the  organisation. 

(5)  It  will   have   the   right  to   the   use   of   any   patents   or   secret 
processes  resulting  from  all  researches  undertaken  either  without 
payment  for  licenses,  or  at  any  rate  on  only  nominal  payment 
as  compared  with  firms  outside  the  organisation. 

(6)  It  will  have  the  right  to  ask  for  a  specific  piece  of  research  to 
be  undertaken  for  its  sole  benefit  at  cost  price,  and,  if  the  gov- 
erning Committee  or  Board  approve,  the  research  will  be  under- 
taken."    p.  50. 

The  annual  reports  of  these  associations  show  them  to  be 
engaged  in  a  constantly  widening  range  of  research  of  a  funda- 
mental character  as  well  as  that  of  immediate  practical  value.81 

Conclusion. — Unquestionably  the  systematic  well-financed  re- 
search work  of  great  industries,  correlated  through  an  advisory 
body  of  the  leaders  of  business  and  science,  such  as  is  being 
developed  in  England,  can  become  a  powerful  factor  in  im- 
proving processes,  reducing  cost  and  increasing  the  efficiency  of 
such  industries  in  world  competition.  It  is  impossible,  within 
the  scope  of  this  chapter,  to  more  than  sketch  the  possibilities  of 
research  as  a  fixed  trade  association  activity.  To  competitive 
industries  striving  for  commercial  supremacy,  it  is  vital.  The 
industry  which  breaks  through  the  limitations  of  the  past  and 
improves  its  products,  reduces  its  cost,  and  opens  new  avenues 
of  demand  must  outstrip  its  more  lazy  competitor  which,  by 
reason  of  lack  of  organization  or  inertia  of  spirit,  is  satisfied 
with  the  status  quo.  There  will  be  no  end  to  progress.  To 

81  See,  for  example,  "Report  of  Council,"  British  Research  Assn.  for 
the  Woollen  &  Worsted  Industry,  1921,  published  March  22,  1922;  Second 
Annual  Report,  of  the  British  Non-Ferrous  Metals'  Research  Assn.,  pub- 
lished January,  1922;  "Report  of  the  Council,"  Linen  Industry  Research 
Assn.,  1921,  published  March  21,  1922. 


126  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  smaller  units  in  any  industry,  competitive  research  offers 
possibilities  of  increased  efficiency  and  greater  profits.  To  in- 
dustry in  general  it  affords  opportunity  for  decreased  cost,  in- 
creased output  and  more  stabilized  conditions  of  manufacture 
and  sale.  To  the  public  it  holds  promise  of  reduced  prices,  bet- 
ter quality,  enlarged  utility  of  products  and  constant  progress. 
In  such  an  activity  there  is  no  hint  of  violation  of  the  law. 
Surely  no  one  will  deny  that  here  is  one  of  the  activities  in 
which  broad-visioned  business  men  may  jointly  engage  and 
render  great  service,  not  only  to  themselves  but  also  to  industry 
and  to  the  public.  Would  it  not  be  possible  to  develop  in  this 
country,  through  the  Department  of  Commerce,  which  is  al- 
ready admirably  equipped  for  such  work,  a  great  central  agency 
of  voluntary  cooperation  in  research  work  which  would  work 
with  an  Advisory  Council  of  the  leaders  of  business,  science  and 
of  labor,  and  keep  intimately  in  touch  with  the  scientific  and  in- 
dustrial development  the  world  over.  Such  an  organization 
could  give  impetus  and  direction  to  the  development  of  Ameri- 
can industry  and  increase  the  prosperity  of  the  nation. 


CHAPTER  VIII 
TRADE  ASSOCIATIONS  AND  LABOR 

THE  importance  to  our  social  and  economic  life  of  a  rap- 
prochement between  capital  and  labor  is  apparent  to  everyone. 
The  development  of  our  great  business  organizations  with  thou- 
sands of  employees  has  destroyed  the  personal  contact  between 
employer  and  worker.  Huge  impersonal  industrial  machines 
to  which  labor  is  merely  a  commodity  do  not  promote  goodwill 
among  their  employees.  The  growing  antagonism  of  labor 
toward  capital  and  its  steady  trend  toward  radicalism  is  a  mat- 
ter of  general  concern.  No  amount  of  legislation  can  correct 
the  situation.  There  must  be  means  provided  for  the  restora- 
tion of  friendly  personal  relations  between  employer  and  em- 
ployee. Laws  may  restrain  abuses  arising  from  warfare  be- 
tween capital  and  labor,  but  the  leaders  of  business  and  the 
leaders  of  labor  approaching  the  problem  in  broad-visioned  and 
public-spirited  fashion  must  themselves  work  out  the  real  solu- 
tion. Surely  the  magnitude  of  such  a  problem  touching  the 
foundations  of  government  and  menacing  the  future  warrants 
organized  consideration  by  the  business  men  of  every  industry. 
The  trade  association  affords  the  medium  for  the  concentration 
of  the  thought  and  the  experience  of  business  men  from  which 
there  ought  to  spring  new  plans  and  new  leadership  working 
for  the  maintenance  of  fair  and  just  relationships  which  will 
protect  public  as  well  as  private  interests. 

Unfortunately,  there  has  been,  comparatively  speaking,  little 
consideration  of  labor  questions  by  trade  associations  except  in 
those  branches  where  labor  is  so  important  a  factor  in  costs  that 
it  compels  attention.  Possibly,  also  there  is  a  feeling  that  the 
dealing  with  labor  as  a  national  unit  is  dangerous.  There  is,  of 
course,  no  activity  in  which  an  association  may  engage  which 
can  more  quickly  wreck  it.  The  United  Typothetse  of  America 
seem  to  have  happily  solved  this  problem  by  creating  two  di- 
visions within  the  association,  called  the  Open  Shop  Division 

127 


128  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

and  the  Closed  Shop  Division,  which  are  completely  autonomous 
in  themselves,  with  a  coordinating  committee  known  as  the  In- 
dustrial Relations  Committee,  to  act  as  an  advisory  body.1  This 
organization  deals  with  the  highly  controversial  questions  in- 
volving labor  policies,  in  order  that  the  general  program  of  the 
association  in  other  matters  may  not  be  harmfully  affected. 

Most  business  men  have  intense  feelings  on  the  labor  ques- 
tion as  it  affects  their  industry,  and  too  often  a  failure  to  main- 
tain their  viewpoint  results  in  their  withdrawal  from  the  asso- 
ciation. But  on  the  other  hand  some  associations  have  found 
that  most  of  their  disputes  are  simply  matters  of  misunder- 
standing which  are  quickly  overecome  if  both  groups  take  the 
time  to  meet  and  discuss  the  dispute  in  a  cooperative  spirit.2  In 
every  association  there  will  be  found  three  groups  of  business 
men.  The  first  are  bitterly  opposed  to  organized  labor  and  are 
determined  to  do  all  within  their  power  to  destroy  it.  The 
second,  more  conservative  and  cautious,  view  the  problem  from 
a  purely  business  standpoint,  dealing  with  labor  to  secure  the 
best  bargain  possible.  The  third  group  are  searching  constantly 
for  new  methods,  new  plans,  and  endeavoring  to  evolve  a  sys- 
tem which  will  make  for  industrial  peace.  In  every  association 
a  relatively  few  men  dominate  its  councils,  and  the  character  of 
these  men  as  well  as  the  character  of  the  leaders  of  labor  will 
determine  the  attitude  of  the  organization  of  the  industry 
toward  labor.  Most  trade  associations  because  of  their  fear  of 
disruption  of  their  association  and  the  desire  of  their  members 
to  have  complete  freedom  of  action  exclude  discussion  of,  and 
organized  effort  in  labor  matters.  Other  associations  are  power- 
fully organized  to  combat  union  labor.  Others  have  evolved 
elaborate  machinery  for  dealing  with  labor  on  a  business  bar- 
gaining basis.  Others  utilize  their  organization  merely  as  a 
forum  for  the  interchange  of  ideas  with  the  hope  that  the  ex- 
change of  experiences  may  be  productive  of  better  conditions. 

Associations  Opposed  to  Organized  Labor. — A  typical 
example  of  the  organizations  whose  fixed  policy  appears  to  be 

1  "Standardization  and  Cooperation  in  the  Printing  Industry,"  F.  A. 
Silcox,  Proceedings,  Academy  of  Political  Science,  vol.  9,  No.  4,  Jan.,  1922. 

2  "Report,"  E.  C.  Miller,  President,  American  Photo-Engravers'  Assn., 
Photo-Engravers'  Bulletin,  July,  1918,  p.  8. 


TRADE  ASSOCIATIONS  AND  LABOR  129 

opposition  to  union  labor  is  the  National  Founders'  Association. 
This  association  has  thoroughly  protected  the  interest  of  its 
members  by  the  maintenance  of  an  effective  strike-breaking  or- 
ganization, an  espionage  system  and  similar  activities.  Its  pol- 
icy is  largely  a  defensive  policy  against  what  it  believes  to  be 
the  unjust  demands  of  labor.  It  stands  vigorously  for  the  open 
shop,  although  a  member  is  not  bound  to  maintain  open  shop 
conditions  in  his  plant.3  The  National  Metal  Trades'  Associa- 
tion, the  National  Erectors'  Association,  and  the  National  Asso- 
ciation of  Manufacturers  to  a  certain  degree  take  the  same 
position.  Some  of  these  organizations  have  adopted  their  pres- 
ent attitude  as  a  result  of  what  they  feel  to  be  unsatisfactory 
experience  in  collective  bargaining  with  labor  organizations. 

The  Study  of  Labor  Problems. — While  it  may  be  better 
from  the  standpoint  of  permanency  of  the  association  for  most 
associations  to  avoid  direct  dealings  with  labor  organizations, 
there  is  no  doubt  that  there  is  a  great  field  for  cooperative  study 
of  labor  problems  affecting  each  industry.  There  ought  to  be  a 
forum  where  the  best  minds  of  the  industry  can  meet  for  the 
discussion  of  new  plans  and  new  methods  of  handling  labor  as 
they  are  evolved  by  the  individual  manufacturers.  It  will  not 
wreck  an  association  merely  to  use  the  organization  as  a  medium 
through  which  the  experience  of  the  individual  members  or  of 
leaders  in  other  industries  may  be  made  available  to  increase 
the  fund  of  knowledge  of  all  members.  There  are  various  ways 
in  which  associations  can  and  have  been  of  value  in  bettering  the 
relationships  between  capital  and  labor. 

Discussion  at  Association  Meetings. — The  first  is  merely  by 
utilizing  the  association  meetings  and  bulletins  for  a  thorough 
discussion  of  labor  problems.  New  plans  for  more  friendly  rela- 
tions between  the  manufacturer  and  his  employees  can  be  ex- 
plained and  subjected  to  the  searching  criticism  of  other  manu- 
facturers. Ideas  of  practical  value  are  thus  constantly  made 
available  for  the  entire  membership.  This  is  the  method  em- 
ployed by  the  Associated  General  Contractors  of  the  United 
States,  the  American  Drug  Manufacturers'  Association,  the  Na- 
tional Association  of  Sheet  Metal  Contractors,  the  National  As- 

3  For  a  history  and  description  of  this  organization,  see  the  Quarterly 
Journal  of  Economics,  vol.  XXX,  February,  1916. 


130  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

sociation  of  Cotton  Manufacturers,  the  National  Association  of 
Builders'  Exchanges,  the  National  Electrical  Contractors'  Asso- 
ciation, the  American  Concrete  Pipe  Association,  the  American 
Foundrymen's  Association,  the  National  Paper  Box  Manufac- 
turers' Association,  the  Refractories  Manufacturers'  Associa- 
tion, and  the  American  Mining  Congress.  Without  committing 
the  association  to  any  fixed  policy,  a  common  fund  of  experi- 
ence of  great  value  is  placed  at  the  service  of  every  manufac- 
turer in  determining  his  individual  labor  policy. 

Formulation  of  Principles. — A  second  method  which  is  but 
an  extension  of  the  first  is  the  formulation  of  the  experiences  of 
the  members  into  working  principles  for  the  benefit  of  the 
membership.  The  Associated  General  Contractors  of  America 
have  adopted  what  is  called  the  Constitution  of  Industrial  Rela- 
tions, outlining  the  general  principles  which  the  association 
believes  to  be  applicable,  which  are  backed  up  by  a  so-called 
"Statute  of  Employment  Relations"  specifically  applied  to  the 
construction  industry.4  This  latter  document  reads  as  follows: 

A  STATUTE  OF  EMPLOYMENT  RELATIONS 

APPLIED  TO  THE  CONSTRUCTION  INDUSTRY 

I. — EMPLOYMENT 

( 1 )  The  value  of  a  good  spirit  in  an  organization  is  vital  to  successful 
industry.     The  organization  may  think  favorably  or   unfavorably  of   its 
employers,  may  work  with  enthusiasm  or  without  any,  depending  upon 
what  the  individual  thinks  of  his  employers  and  the  work  they  are  doing. 
Therefore,  there  must  be  frankness  between  employer  and  employee,  perfect 
freedom  in  action  and  expression  of  thought,  to  maintain  mutual  friendly 
relations. 

(2)  When  hiring  an  employee,  a  complete  record  of  his  experience 
should  be  obtained.     He  should  be  fully  informed  of  the  conditions  of  his 
employment,  wages,  hours,  location,  living  conditions,   dangers,   etc.,  and 
the  methods  of  his  employer  and  what  he  expects  of  his  employee.    That  is, 
there  should  be  frankness,  mutual  confidence,  and  respect  on  both  sides 
from  the  start.     Continuous  efforts  must  be  made  to  advance  and  increase 
these  mutual  relations  in  order  to  prevent  or  adjust  misunderstandings  as 
soon  as  they  are  discovered. 

(3)  The  fact  is  recognized  that  in  many  locations  and  establishments, 

*  Bulletin,  of  Associated  General  Contractors,  Feb.,  1921,  pp.  29,  31. 


TRADE  ASSOCIATIONS  AND  LABOR  131 

the  basic  eight-hour  day,  or  a  weekly  equivalent,  has  been  adopted  as  the 
usual  standard.  As  the  number  of  hours  properly  constituting  a  day's 
work  varies  in  some  locations  and  classes  of  construction  work,  it  is  recom- 
mended that  changes  from  the  usual  standard  be  so  made  as  not  to  disrupt 
or  disorganize  the  rest  of  the  industry. 

(4)  Overtime  work  should  be  discouraged.     Where  the  nature  of  the 
work  is  such  as  to  require  employees  to  work  beyond  the  established  hours, 
they  should  receive  an  extra  rate  of  compensation  for  such  overtime. 

(5)  Continuity  of  employment  is  desirable  and  should  be  maintained 
as  far  as  possible. 

(6)  Apprentices  should  not  be  limited  in  number  in  any  trade.     If 
equitable  rules  as  to  the  period  of  service  and  the  degree  of  skill  required 
of  apprentices  are  made  by  the  various  trades,  the  law  of  supply  and  de- 
mand will  regulate  the  number. 

(7)  Discrimination  against  the  use  of  apprentices  by  organized  labor 
must  not  be  permitted.     Employers  in  large  communities  should  encourage 
the  establishment  of  public  trade  schools  and  the  attendance  of  the  youth 
at  them. 


II. — WORKING  CONDITIONS 

(1)  The  public   interest  and  the   comfort  and  health   of  individual 
employees  demand  that  every  effort  should  be  made  to  perfect  the  condi- 
tions of  employment,  with  special  reference  to  sanitary  conditions,  heat, 
light,  ventilation;   safeguarding  the  health  of  workers  and  providing  pro- 
tection against,  and  treatment  in  case  of  accidents;   suitable  rest  periods 
where  necessary;  and  due  warning  to  the  worker  if  he  is  undertaking  to 
perform  a  hazardous  operation. 

(2)  Provide  safety  devices  and  guards  against  accident  and  disease. 
Mechanical  plants,  stagings,   ways  and  works   should  be  inspected  daily. 
Where  temporary  camps  are  used,  provide  proper  inspection  for  sanitation, 
food  supply,  water,  and  the  welfare  of  the  men. 

(3)  Employees   should  be   safeguarded   against  unjust   treatment  or 
arbitrary  discharge  by  their  foremen  or  immediate  superiors.     In  justice 
to  employees,  adequate  advance  notice  should  be  given,  whenever  possible, 
to  those  who  must  necessarily  be  laid  off.     Likewise,  an  employee  should 
give  reasonable  notice  to  his  employer  of  his  intention  to  leave  the  service. 

(4)  The  temperament  of  the  gang  boss  or  foreman  in  direct  contact 
with  the  hand  workers  is  most  important.     He  must  be  fair  and  give 
his  men  a  square  deal. 

(5)  Establish  by  conference  between  the  parties,  what  facts  concern- 
ing the  company's  and  men's  activities  should  be  common  knowledge  to 
both,  and  provide  for  giving  these  facts  fullest  publicity. 

(6)  All  States  should  enact  compulsory  workmen's  compensation  in- 
surance laws  that  are  just  both  to  the  employer  and  employed. 


132  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

III . — PRODUCTION 

(1)  Public  interest  requires  increasing  output  per  man  as  a  prime 
factor  in  reducing  construction  costs. 

(2)  Employees  should  not,  therefore,  intentionally  restrict  individual 
output  to  create  an  artificial  scarcity  of  labor  as  a  means  of  increasing 
wages  or  continuity  of  employment,  or  of  equalizing  the  productivity  and 
wages  of  workers  having  different  degrees  of  skill  and  ability.     Employees 
should  also  cooperate  with  the  employer  in  the  adoption  of  new  and  im- 
proved machinery  and  methods  with  a  view  to  increasing  efficiency,  thereby 
lowering  the  cost  of  construction. 

(3)  The  value  of  industrial  training  as  a  means  of  increasing  produc- 
tion is  recognized.     Such  training  should  be  encouraged  by  employers  and 
employees. 

(4)  The   reduction   in   working   hours   below   the   economic   limit   in 
order  to  secure  greater  leisure  for  the  individual  should  be  made  only  with 
full  understanding  and  acceptance  of  the  fact  that  it  involves  a  commen- 
surate loss  in  the  earning  power  of  the  workers,  a  limitation  and  a  short- 
age of  the  output  of  the  industry,  and  an  increase  in  the  cost  of  construc- 
tion, with  all  the  necessary  effect  of  these  things  upon  the  interests  of  the 
community  and  the  nation. 

( 5 )  As  an  incentive  to  greater  production,  make  provision  for  increas- 
ing compensation  whereby  men  of  extra  skill  and  knowledge  may  add  to 
their  regular  wage. 

(6)  Make  some  expression  of  appreciation,  by  word  or  letter  as  reward 
for  duty  well  done. 

(7)  Make  an  incentive  to  extra  effort  for  production  by  promotion 
where  possible  for  those  who  prove  worthy. 

IV. — EIGHT  OF  ASSOCIATION 

(1)  The  association  in  groups  of  employees  not  affiliated  with  an  or- 
ganization of  non-employees  should  be  encouraged.    The  right  of  employees 
to  organize  into  trade  unions  is  recognized. 

(2)  Employees  should  not  require  of  their  employer  that  employment 
be  conditioned   on  membership  or  non-membership   in   a  trades  or  labor 
union.     Employees  should  not  coerce  fellow-employees  to  join,  or  refrain 
from  joining,  a  trades  or  labor  union. 

(3)  Freedom  of  contract  of  employment  must  never  be  impaired.    How- 
ever, employers  should  not  so  exercise  this  right  as  to  discriminate  in  the 
employment  or  discharge  of  employees  on  the  ground  that  they  are,  or 
are  not,  members  of  a  trades  or  labor  union. 

(4)  Means  should  be  devised  to  create  public  sentiment  in  favor  of 
these  principles  and  to  keep  the  community  informed  of  all  action  at  vari- 
ance to  them. 

(5)  Capital,  employers  and  employees  should  be  subject  to  law  and  its 


TRADE  ASSOCIATIONS  AND  LABOR  133 

processes  with  equal  facility.  Special  legislation  which  may  benefit  either 
to  the  possible  injury  of  the  other,  or  to  the  possible  injury  of  the  con- 
sumer, is  detrimental — and  a  consequent  menace  to  the  community. 


V. — ADJUSTMENTS  OF  DISPUTES 

(1)  Adequate  means,  satisfactory  to  both  employer  and  employee,  and 
voluntarily  agreed  to  by  them,  should  be  provided  for  mutual  discussion 
and  adjustment  of  employment  relations. 

(2)  Where  the  channel   of  communication  existing  between  an   em- 
ployer and  the  individual  employee  does  not  offer  employees  suitable  means 
of  negotiation  with  their  employer,  the  employer  should  seek  to  establish 
mutually  satisfactory  means.     For  this  purpose  representative  negotiation 
is  advocated. 

(3)  Representative  negotiation  is  defined  as  that  form  of  collective 
bargaining  which  provides  for  negotiation  between  an  employer  and  duly 
accredited  representatives  of  his  employees,  regarding  hours,  wages,  and  all 
other  matters  properly  affecting  their  relationship.     Employees'  represen- 
tatives should  be  duly  accredited,  should  be  chosen  by  the  employees,  from 
among  their  own  number  unless  otherwise  agreed  by  employer  and  em- 
ployees, and  be  empowered  by  the  employees  to  negotiate  for  them.     Such 
negotiation  should  be  under  control  of  the  parties  immediately  concerned 
and  should  they  fail  to  reach  an  agreement,  the  employer  and  the  group 
of  employees'  representatives  should  each  have  the  option  of  choosing,  with- 
out restriction  by  the  other  party,  a  reputable  and  competent  advisor  or 
advocate  to  meet  with  them  in  the  continued  negotiations.     Representatives 
of  employees,  selected  by  and  from  among  their  own  number,  should  be  as- 
sured by  their  employer  that  no  discrimination  will  be  made  against  them 
because  of  anything  said  or  done  in  their  representative  capacity. 

(4)  As  it  is  often  impractical,  owing  to  the  nature  of  the  industry, 
for  a  single  employer  to  reach  a  final  conclusion  with  his  own  employees, 
a  group  of  employers  should  negotiate  with  a  group  of  employees.    Such 
group  negotiations  should  be  conducted  as  far  as  possible  in  accordance 
with  the  plan  of  representative  negotiations  above  outlined. 

(5)  Nothing  herein  is  intended  to  abrogate  the  right  of  an  individual 
employee  to  negotiate  directly  with  his  employer. 

(6)  Employers   and   employees   should   uphold   in   their   integrity  all 
arbitration  awards  or  agreements  entered  into  between  them. 

(7)  While  the   employer   and   employee  may  reach   a  settlement  of 
their  individual  relations  without  reference  to  outside  aid,  this  solution 
may  affect  the  rest  of  the  industry,  locally,  as  well  as  the  interest  of  the 
public,  which  is  paramount.     Therefore,  the  public's  representatives  ought 
to  have  a  right  of  review  of  a  settlement  to  ensure  that  its  interests  are 
protected.     The  interests  of  the  public  in  reviewing  adjustments  of  indus- 
trial relations  can  be  well  performed  by  the  establishment  of  Industrial 
Courts. 


134  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

(8)  There  must  be  no  coercion  by   either  party   toward   the   other. 
Public  sentiment  should  support  all  public  officials  in  enforcing  the  laws  in 
respect  of  these  practices. 

(9)  The  fact  should  be  recognized  that  both  employer  and  employee 
are  servants  of  the  public,  that  every  disagreement  adds  to  the  cost  of 
living  and  that  the  final  judge  in  all  disputes  should  be  the  public.     The 
public  should  give  expression  to  its  views   through  a  board   of   advisers 
whose  decision  should  be  recognized  by  both  parties  as  final.     Disputes, 
ill  feeling,  and  discord  invariably  fade,  once  the  facts  are  aired  and  given 
to  the  public." 


Similar  action  in  every  industry  in  formulating  basic  principles 
of  relationship  and  procedure  with  labor,  even  though  far  from 
perfect  crystallizes  and  directs  sentiment  along  constructive 
channels. 

Association  Action  on  Labor  Problems. — A  third  form  of 
labor  activity  is  direct  active  participation  in  activities  designed 
to  improve  labor  conditions  and  industrial  relations,  but  not 
necessarily  involving  controversies  with  labor  organizations. 

Accident  Prevention. — A  number  of  associations  are  giving 
considerable  attention  to  safety  and  accident  prevention  work. 
Among  these  may  be  mentioned  the  Southern  Pine  Association, 
the  Associated  General  Contractors  of  America  and  the  National 
Association  of  Manufacturers.  The  Southern  Pine  Association 
has  held  frequent  conferences  with  managers  and  superinten- 
dents, has  conducted  many  meetings  with  employees,  and  has 
published  a  number  of  bulletins  instructing  employees  and  em- 
ployers as  to  causes  of  accidents  and  their  avoidance.  This 
work  has  resulted  in  a  reduction  in  the  number  of  more  serious 
classes  of  accidents.  Some  associations  have  been  cooperating 
with  the  National  Safety  Council  in  this  work.  Aside  from  the 
desirability  of  protecting  employers,  employees  and  the  com- 
munity against  the  burdens  imposed  by  avoidable  accidents,  it 
is  recognized  that  humanitarian  considerations  as  well  as  the 
tendency  of  such  work  to  discourage  radical  movements  among 
working  men  make  it  of  great  value  to  industry.5  A  real  pro- 
gram of  accident  prevention  in  industries  where  labor  cost  is  a 
considerable  portion  of  the  total  costs  reduces  costs,  decreases 

5  Fourth  Annual  Proceeding,  Southern  Pine  Assn.,  1919,  p.  41. 


TRADE  ASSOCIATIONS  AND  LABOR  135 

labor  turnover,  increases  the  morale  of  employees,  and  builds 
goodwill  between  employer  and  employee.6 

Trade  Education. — The  education  of  the  present  and  future 
labor  supply  may  be  desirable  to  maintain  the  efficiency  of  pro- 
duction. An  organization  has  been  projected  in  England  known 
as  the  National  Alliance  of  Employers  and  Employees,  which  is 
working  out  a  great  program  of  economic  education.7  A  special 
educational  committee  with  one-half  of  its  personnel  employers 
and  the  other  half  trade  unionists  is  working  in  cooperation  with 
the  educational  authorities  to  develop  textbooks  without  bias 
which  it  is  hoped  will  aid  materially  in  promoting  industrial 
peace.  In  America  educational  work  so  far  as  trade  associa- 
tions are  concerned  has  been  more  directly  utilitarian.  Its  pur- 
pose has  been  to  educate  the  worker  in  his  trade,  either  as  a 
means  of  enlarging  or  increasing  the  efficiency  of  the  labor  sup- 
ply or  of  freeing  industry  from  what  are  felt  to  be  the  undue 
restrictions  of  the  unions.  The  United  Typothetae  of  America 
is  developing  a  program  of  apprenticeship  training  in  the 
printing  industry  because  of  the  appalling  shortage  of  appren- 
tices. Investigation  by  the  association  disclosed  that  printers 
generally  do  not  average  much  over  fifty  per  cent  of  the  num- 
bers of  apprentices  permitted  under  the  union  rules.8  The  Na- 
tional Metal  Trades  Association  has  made  a  survey  of  various 
methods  of  industrial  education  through  apprenticeships,  trade 
schools,  foreman  instruction,  special  plant  training,  and  vesti- 
bule schools,  in  an  effort  to  widen  the  interests  of  its  members 
in  trade  education.9  Other  associations  have  actively  cooper- 
ated with  the  school  authorities  in  the  larger  cities,  and  have 
brought  about  the  establishment  of  special  trade  schools.  The 
Labor  Committee  of  the  National  Association  of  Sheet  Metal 
Contractors  has  studied  and  approved  the  courses  of  certain 
correspondence  schools,  and  has  worked  successfully  with  local 


: 


6  Davis   S.   Beyer,   Bulletin,   of   the  Associated   General    Contractors, 
February,  1921,  p.  58. 

"Economic  Facts  for  Young  Trade  Unionists,"  Harry  Dubery,  Bulle- 
in,  of  the  Federation  of  British  Industries,  Dec.  13,  1921,  p.  728. 

s  "Report,"  H.  P.  Porter,   Chairman,   Committee  on   Education,  Pro- 
ceedings, Convention  United  Typothetse  of  America,  1919. 
»  Open  Shop  Review,  June,  1919,  p.  213. 


136  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

associations  for  the  establishment  of  courses  of  study  in  the  day 
and  night  schools.10 

The  Sheet  Metal  Employers  of  Brooklyn  for  some  time  have 
partly  financed  a  course  in  sheet  metal  work  at  Pratt  Institute, 
and  similar  courses  are  being  given  in  several  trade  schools  in 
New  York  City.11 

The  United  Typothetae  of  America  has  for  seventeen  years 
maintained  a  school  of  printing.12  This  school  has  equipment 
valued  at  $100,000,  and  a  large  number  of  its  graduates  hold 
positions  of  responsibility  in  the  industry.  Its  work  is  under  the 
direction  of  the  association.  Tuition  charges  are  made  at  ap- 
proximate cost.  The  Canadian  building  construction  industries 
have  proposed  the  creation  of  a  National  Apprentice  Council, 
consisting  of  one  employer  in  each  branch  of  the  building  trade, 
one  journeyman  for  each  branch,  two  architects,  and  two  indus- 
trial engineers  whose  duties  would  be  to  set  up  local  councils 
similarly  organized,  who  would  apply  to  their  localities  a  uni- 
form system  of  indenture  and  education.13 

The  National  Federation  of  Construction  Industries  is  gath- 
ering information  as  to  plans  and  systems  of  apprenticeships 
from  every  possible  source,  with  a  view  to  working  out  a  con- 
structive plan  of  action  in  this  country.14  Building  construc- 
tion courses  were  started  in  the  College  of  the  City  of  New  York 
four  years  ago,  the  plan  being  to  establish  some  twenty  courses 
which  would  offer  practical  training  to  any  grade  of  men  con- 
nected in  any  way  with  building  construction.  In  the  building 
trades  recently,  even  with  the  unemployment  prevailing 
throughout  the  country,  there  was  a  shortage  of  certain  classes 
of  labor.  This  association  stresses  the  importance  of  educational 
work  of  this  character  in  the  following  language : 

10  Proceedings,  1915,  pp.  17,  18. 

11  Sheet  Metal  Journal,  July,  1917,  p.  35. 

12  Typothetce  Bulletin,  August,  1918,  p.  23. 

is  Report,  L.  C.  Wason,  Chairman  Committee  on  Labor,  Associated 
General  Contractors  of  the  United  States;  The  Constructor,  June,  1922,  p. 
42;  the  labor  committee  of  this  association  is  doing  exceptionally  merit- 
orious work  in  the  study  of  labor  problems  and  in  focusing  the  attention 
of  association  members  on  these  questions. 

14  Bulletin,  Feb.  25,  1922. 


TRADE  ASSOCIATIONS  AND  LABOR  137 

"It  is  the  responsibility  of  management  to  attract  and  to  properly 
train  a  sufficient  number  of  young  men  in  the  building  trades,  if  we 
are  to  achieve  the  potentiality  of  latent  and  undeveloped  markets  for 
the  construction  industries  in  the  years  to  come."  15 

There  would  appear  to  be  an  almost  endless  field  for  work  of 
this  character  among  trade  associations.  There  is  certainly  a 
great  opportunity  for  the  reasonable  coordination  of  our  in- 
dustries with  our  educational  system.  Cooperation  with  educa- 
tional authorities  would  make  our  system  of  education  more  re- 
sponsive to  the  needs  of  industry  and  of  untold  benefit  in  in- 
creasing the  earning  power  of  thousands  of  boys  and  girls  whose 
education  must  by  force  of  economic  conditions  be  limited. 

Settlement  of  Jurisdictional  Strikes. — Again,  some  associa- 
tions have  been  able  to  aid  labor  organizations  themselves  in 
the  elimination  of  disputes  which  result  in  loss  of  time  and  eco- 
nomic waste.  The  Associated  General  Contractors  of  America 
has  helped  to  reduce  the  waste  resulting  from  strikes  in  the  con- 
struction industries  in  a  very  effective  manner.  Almost  eighty 
per  cent  of  the  strikes  in  building  operations  have  been  Jurisdic- 
tional strikes,  i.e.,  strikes  arising  from  disputes  between  unions 
as  to  which  trade  is  entitled  to  do  the  work.16 

A  national  board  for  Jurisdictional  awards  has  been  created 
to  adjudicate  the  rights  of  the  several  trades  to  a  particular 
class  of  work  in  case  of  dispute.17  The  personnel  of  this  board 
consists  of  one  representative  from  the  American  Institute  of 
Architects,  one  from  the  Engineering  Council,  two  from  the 
Associated  General  Contractors  of  America,  one  from  the  Na- 
tional Association  of  the  Building  Trades,  and  three  from  the 
Building  Trades  Department  of  the  American  Federation  of 
Labor.  This  board,  operating  under  a  constitution  and  clearly 
defined  rules  of  procedure  has  rendered  a  number  of  decisions 
which  have  improved  working  conditions  in  the  industry. 

Unemployment. — Associations  with  mixed  motives  of  benefit 
to  themselves  and  to  labor  can  make  studies  of  unemployment 
and  its  causes.  The  Associated  Contractors  of  America  have 

is  Bulletin,  Feb.  25,  1922. 

le  Bulletin,  of  the  Associated  General  Contractors,  February,  1921,  p.  4. 

17  Ibid.,  p.  35. 


138  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

made  a  study  of  unemployment  in  our  various  cities,  and  are 
endeavoring  to  bring  about  an  increase  in  fall  letting  of  con- 
tracts to  lessen  the  seasonal  character  of  their  building.18  The 
same  association  has  made  a  thorough  investigation  of  wages 
and  living  costs  in  our  various  cities  which  has  had  unexpected 
results  in  some  instances  in  lessening  the  demands  of  employers 
for  the  reduction  of  wages. 

Other  Activities. — The  foregoing  are  typical  of  activities  in 
which  associations  may  safely  engage.  There  would  appear 
to  be  no  good  reason  why  the  association  could  not  be  utilized  as 
a  medium  for  the  study  of  every  phase  of  the  labor  question. 
The  results  of  welfare  work,  the  effect  of  lighting  conditions 
and  sanitary  conditions  on  working  efficiency,  living  conditions 
in  an  industry,  the  cost  of  living,  the  effect  of  shorter  hours  on 
production,  the  shop  council  systems,  the  effect  of  restrictive 
union  regulations  and  many  other  problems  could  be  studied  in 
a  practical  business  manner.  The  United  Typothetae  of  Amer- 
ica through  their  Department  of  Industrial  Relations  are  mak- 
ing comprehensive  statistical  studies  of  the  labor  supply,  wage 
trends,  and  cost  of  living.  The  experience  of  every  member 
could  be  made  available  to  all  the  members  and  submitted  to 
their  criticism  and  analysis.  If  the  trade  associations  of  the 
country  would  make  such  matters  a  fixed  part  of  their  activities 
for  serious  study  and  discussion  at  meetings  and  by  committees 
composed  of  members  who  take  a  deep  interest  in  such  problems, 
there  can  be  little  doubt  that  there  would  be  a  substantial  im- 
provement in  the  relationships  of  capital  and  labor. 

Collective  Bargaining  Between  Associations  and  Labor. — 
The  more  intensive  organization  of  society  tends  inevitably 
toward  group  action.  Business,  farm,  labor  and  many  other  in- 
terests have  within  the  past  ten  years  developed  organizations 
of  amazing  size  and  power.  The  laboring  man  always  living 
close  to  the  margin  of  subsistence  probably  has  a  greater  need 
for  organization  than  any  other  social  group.  The  practical  im- 
possibility of  securing  uniform  labor  legislation  because  of  the 
fact  that  manufacture,  as  such,  is  not  within  the  control  of  the 

is  The  Constructor,  March,  1922,  p.  53. 


TRADE  ASSOCIATIONS  AND  LABOR  139 

federal  government,  makes  organization  the  only  method  by 
which  the  working  man  can  hope  to  secure  anything  approach- 
ing uniformity  of  standards  of  living.  It  is  wholly  beyond  the 
power  of  well-intentioned  manufacturers  to  control  the  labor 
methods  of  their  competitors.  If  labor  is  not  organized  to  pre- 
vent such  concerns  from  maintaining  low  standards  in  their 
plants,  the  force  of  their  competition  will  compel  the  adoption 
of  such  standards  generally.  Inexorable  economic  conditions 
compel  the  widespread  organization  of  labor  and  it  is  futile  to 
hope  that  labor  will  revert  to  the  disorganization  of  earlier  days. 
While  concerted  movements  of  employers  may  change  the  form 
of  organization  or  result  in  temporary  disorganization,  it  is  in- 
evitable that  the  labor  of  the  future  will  be  organized  labor, 
more  effective  and  powerful  than  it  is  to-day  just  as  business, 
itself  is  steadily  becoming  better  organized  as  a  group.  The 
existence  of  the  group  system  in  industry  will  compel  the  evolu- 
tion of  procedure  and  machinery  for  negotiation  and  contact  be- 
tween such  groups. 

As  the  labor  movement  strengthens,  collective  bargaining  will 
become  more  common.  Regardless  of  broken  agreements,  re- 
gardless of  abuses,  collective  bargaining  represents  the  orderly 
method,  the  businesslike  method  under  which  labor  and  capital 
on  the  basis  of  equality  of  position  may  fix  the  terms  of  their 
relationships.  There  are  practical  advantages  both  to  business 
and  to  labor  in  joint  dealings  of  this  character  of  which  the 
limits  of  this  chapter  will  not  permit  discussion.19  Regardless 
of  its  merits  or  demerits,  collective  bargaining  by  written  con- 
tract between  responsible  parties  is  the  businesslike  way  of  fix- 
ing relations.  While  attempts  to  reduce  the  size  of  the  labor 
units  with  which  such  contracts  are  made,  through  the  organiza- 
tion of  shop  committees  or  similar  devices  may  be  temporarily 
successful,  the  ultimate  result  will  be  a  federation  or  unification 
of  such  committees  into  a  national  or  regional  organization. 
Workingmen  will  quickly  be  taught  that  there  is  a  tendency  for 


19  For  an  able  discussion  of  the  value  of  collective  bargaining,  see 
TEAD  AND  METCALF,  "Personnel  Administration,"  Chaps.  XXXI,  XXXII, 
McGraw-Hill  Book  Co. 


140  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  wage  scale  and  conditions  of  employment  to  fall  to  the  level 
of  the  lowest  existing  in  the  industry,20  a  tendency  which  only 
widespread  organization  can  offset. 

In  industries  where  labor  represents  a  substantial  portion  of 
the  cost  of  production,  and  the  employees  have  a  national  or- 
ganization, it  is  now  often  necessary  for  the  entire  industry  to 
act  as  a  unit  in  bargaining  with  the  union  as  to  wages  and  con- 
ditions of  employment.  Sometimes  too,  the  industry  is  localized 
as  to  its  production  so  that  the  evils  which  may  flow  from  na- 
tional agreements  are  unavoidable.  The  Associated  Leather 
Goods  Manufacturers  has  negotiated  agreements  with  the  union 
covering  hours,  overtime,  piece  work,  outside  shops,  sanitary 
conditions,  and  the  like,  which  also  provide  machinery  for  the 
arbitration  of  all  complaints  and  disputes.21  The  Granite  Manu- 
facturers' Association  for  thirty  years  negotiated  trade  agree- 
ments with  the  unions  in  the  industry  covering  hours  of  labor, 
wages,  and  conditions  of  employment.22  This  Association 
recently,  however,  because  of  inability  to  bring  about  a  reduc- 
tion in  wages  is  endeavoring  to  work  under  the  so-called  c '  Ameri- 
can "  plan,  providing  also  machinery  whereby  any  worker  may 
apply  to  the  Association  if  he  fails  to  secure  justice  from  his 
employer.23  The  International  Monumental  Granite  Producers ' 
Association  has  also  dealt  directly  with  the  labor  organizations.24 

The  newspaper  publishers  since  1899  have  entered  into  arbi- 
tration agreements  with  the  unions  for  the  arbitration  of  dis- 
putes regarding  wages,  hours  and  working  conditions,  and  the 
machinery  thus  manufactured  has  prevented  hasty  action  and 
insured  reasonable  consideration  of  issues  as  they  arise.25 

20  W.  L.  MACKENZIE  KING,  "Industry  and  Humanity,"  p.  67. 

21  "Memorandum    of    Agreement    between    Associated    Leather    Goods 
Manufacturers    of   the   United    States,   and   the   Fancy   Leather    Workers' 
Union,"  Aug.  30,  1921. 

22  See   "Handy  Reference   Book:    Agreements  and   Indentures,"   1915- 
1920,  Granite  Mfrs'.  Assn. 

23  Letter,  Athol  R.  Bell,  Secretary,  Granite  Mfrs'.  Assn.,  May  4,  1922. 

24  See    Agreement    between    International    Monumental    Granite    Pro- 
ducers' Assn.  and  Granite  Cutters'  International  Assn.  of  America,  Feb. 
27,  1919. 

25  L.  B.  Palmer,  Secretary,  American  Newspapers  Publishers'  Assn., 
Publishers'  Guide,  May,  1912,  p.  37. 


TRADE  ASSOCIATIONS  AND  LABOR  141 

The  West  Coast  Lumbermen's  Association  deals  directly 
with  its  employees  through  a  joint  board  of  twelve  employers 
and  twelve  employees.26 

The  Closed  Shop  Division  of  the  United  Typothetae  of  Amer- 
ica, when  authorized  by  its  local  divisions,  deals  directly  with 
the  three  great  unions  of  the  industry.27  The  effective  organi- 
zation of  employers  and  employees  in  every  industry  has  possi- 
bilities of  very  substantial  benefits.  Indeed  practical  students 
of  the  labor  problem  take  the  position  that  "the  maximum  de- 
gree of  nationwide  organization  on  the  part  of  employers  and 
workers  is  indispensable  to  a  scientific  and  sound  industrial  fu- 
ture. ' ' 28  The  value  of  complete  organization  has  been  stated  in 
the  Garton  Foundation  Memorandum  in  the  following  lan- 
guage : — 

"Yet  the  possibilities  of  combined  action  which  lie  in  these  two 
great  groups  of  highly  organized  and  powerful  bodies  might  transform 
the  whole  face  of  industrial  life.  Their  united  knowledge  of  both  sides 
of  the  industrial  process  should  enable  them  to  throw  light  on  every 
phase  of  its  successive  developments.  Their  united  strength  would 
render  them,  in  combination,  practically  irresistible.  But  to  secure 
the  realization  of  these  possibilities  the  cooperation  between  the  two 
groups  must  be  continuous  and  constructive,  and  must  be  based  upon 
a  recognition  of  the  common  interests  of  employers  and  employed,  both 
as  parties  to  industry  and  members  of  the  community.  Employers 
must  realize  that  both  their  own  interests  and  the  obligations  of  citi- 
zenship impose  upon  them  the  necessity  of  sympathetic  understanding 
of  the  lives  and  standpoint  of  those  with  whom  they  work  and  a 
willingness  to  cooperate,  without  dictation  or  patronage,  in  every  en- 
deavour to  improve  their  material  or  social  conditions.  Labor  must 
realize  its  direct  interest  in  the  improvement  of  industrial  processes, 
the  organization  of  industry,  the  standard  and  quantity  of  production, 
and  the  elimination  of  waste  in  material  or  effort.  Both  the  Em- 
ployers' Association  and  Trade  Unions  must  learn  to  regard  them- 

2c  "National  Trade  Associations,"  A  Study  by  National  Assn.  of  Manu- 
facturers, 1922,  p.  166. 

27  "Standardization  and  Cooperation  in  the  Printing  Industry,"  F.  A. 
Silcox,  Proceedings,  American  Academy  of  Political  Science,  vol.  9,  No.  4, 
January,  1922. 

as  TEAD  AND  METCALF,  "Personnel  Administration,"  p.  488. 


142  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

selves  as  joint  trustees  of  one  of  the  most  important  elements  of 
national  life."  29 

More  effective  organization  of  both  employers  and  labor  can 
be  of  great  public  benefit  just  as  it  can,  if  improperly  directed, 
be  capable  of  the  most  serious  public  injury. 

Industrial  Councils. — As  a  result  of  urgent  war  needs,  the 
British  government  early  in  the  war  recommended  the  forma- 
tion by  associations  of  employers  and  employees  in  the  various 
industries  of  Joint  Standing  Industrial  Councils,  consisting  of 
representatives  of  each  group.  This  idea  has  spread  gradually 
until  there  are  now  councils  in  over  fifty  industries  in  which 
there  are  included  over  three  million  workers.30  These  organi- 
zations are  permanent  institutions,  based  upon  the  principle  of 
equal  representation.  They  do  not  limit  their  deliberation  to 
questions  of  wages  and  working  conditions  but  consider  also 
general  problems  affecting  the  future  of  an  industry  such  as  re- 
search, the  introduction  of  improvements,  proposed  legislation 
and  so  on.31  There  has  been  manifested  recently  a  tendency  to 
introduce  in  this  country  somewhat  similar  organizations  for  the 
joint  consideration  of  industrial  problems.  In  1919,  there  was 
formed  in  the  printing  industry  an  International  Joint  Confer- 
ence Council  consisting  of  the  following  constituent  bodies: — 

Closed  Shop  Division,  United  Typothetae  of  America, 
Printers'  League  of  America, 
International  Association  of  Electrotypers, 
American  Association  of  Photo-Engravers, 

which  are  employers'  organizations,  and 

The  International  Typographical  Union, 

The  International  Printing  Pressmen  and  Assistants'  Union, 

The  International  Brotherhood  of  Bookbinders,  and 

The  International  Stereotypers'  and  Electrotypers'  Union.32 

29  Garton  Foundation  Memorandum,  "The  Industrial  Situation  after 
the  War,"  reprint  by  U.  S.  Shipping  Board. 

so  TEAD  AND  METCALF,  "Personnel  Administration,"  Chap.  XXXIV  dis- 
cusses the  history,  organization  and  methods  of  these  councils. 

si  Hid.,  pp.  495,  496. 

32  "Standardization  and  Cooperation  in  the  Printing  Industry,"  F.  A. 
Silcox,  Proceedings,  American  Academy  of  Political  Science,  vol.  9,  No.  4, 
January,  1922. 


TRADE  ASSOCIATIONS  AND  LABOR  143 

The  constitution  of  this  organization  states  its  purposes  in  the 
following  language: 

I.    PREAMBLE 

"Only  through  joint  conferences  in  the  spirit  of  mutual  helpfulness 
between  employees  and  employers  can  the  foundation  be  laid  for  stable  and 
prosperous  conditions  within  the  printing  industry.  To  promote  the  spirit 
of  cooperation  and  to  deal  with  the  problems  of  the  industry  in  a  way  to  in- 
sure the  protection  of  the  interests  of  all  concerned,  the  establishment  of 
an  International  Joint  Conference  Council,  made  up  of  representatives  of 
employers  and  employees,  which  shall  be  thoroughly  informed  as  to  condi- 
tions and  interests  of  all  parties  in  the  industry  and  in  a  position  to  sug- 
gest for  ratification  regulations  which  shall  eventually  become  the  law  of 
the  industry,  is  considered  essential. 

"Compulsory  arbitration  by  law  is  deemed  impracticable  as  a  means  of 
adjusting  controversies  between  employers  and  employees.  Controversies 
between  employers  and  employees  can  and  should  be  adjusted  through  vol- 
untary agreements  to  refer  disputes  to  boards  of  conciliation  and  arbitra- 
tion composed  of  representatives  of  employers  and  employees  in  the  industry 
affected.  It  is  in  this  spirit  of  arbitration  and  conciliation  that  the  or- 
ganization and  operation  of  an  International  Joint  Conference  Council  for 
the  Printing  Industry  and  Allied  Trades  is  undertaken." 

III.    SCOPE  OF  ACTIVITIES 

"The  International  Council  is  to  devote  its  activities  not  primarily  to 
disputes,  to  the  fixation  of  wage  scales,  the  making  of  specific  wage  agree- 
ments and  the  like,  but  to  matters  of  policy. 

"Among  the  activities  which  might  come  within  the  scope  of  the 
International  Council  are  the  following: 

(a)  Outlining  of  general  trade  policies  which  will  secure  the  greatest 
degree  of  cooperation  between  employer  and  employee,  and  at  the  same 
time  insure  full  protection  of  the  interests  of  the  public. 

(b)  Considering,  reporting  and  advising  on  any  legislation,  affecting 
the  trade. 

(c)  Studying  and  proposing  methods  for  securing  uniform  hours  and 
shop  practices. 

(d)  Cooperation  with  those  departments  of  the  Government  exercising 
jurisdiction,  to  maintain  such  selling  prices  as  will  insure  a  reasonable 
remuneration  to  both  employers  and  employees. 

(e)  Consideration  and  review  of  the  causes  of  any  disputes  which  arise 
in   the   industry.     All   conciliation   and    arbitration   processes   covered    in 
existing  agreements  must  be  exhausted  before  appeals  are  taken  to  the 
International  Council.     Where  no  arbitration  or  trade  agreements  are  in 


144  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

effect,  appeals  may  be  taken  through  regular  and  recognized  channels  to 
the  International  Council. 

(f)  Investigation  of  the  question  of  apprenticeship  conditions;   adop- 
tion of  suitable  methods  of  selection  for  apprenticeship,  and  the  technical 
training  of  apprentices,  learners  and  journeymen  throughout  the  industry; 
the  improvement  of  process,   designs  and   standards  of  workmanship;   to 
seek  adequate  representation  on  the  control  and  management  of  all  tech- 
nical institutes;    to  consider   and  report  upon  all   improvements  of  pro- 
cesses, machinery  and  organization,  and  appropriate  questions  relating  to 
management  and  the  examination  of  industrial  experiments,  with  special 
reference  to  cooperation  in  carrying  new  ideas  into  effect,  and  full  considera- 
tion of  the  employees'  point  of  view  in  relation  thereto.    The  better  utiliza- 
tion of  the  practical  knowledge  and  experience  of  employees,  with  provision 
for  facilities  for  the  full  consideration  and  utilization  of  acceptable  inven- 
tions and  improvements  designed  by  employers  or  employees,  and  for  the 
adequate  safeguarding  of  the  right  of  the  designer  of  such  improvements. 

(g)  Determination  of  practicability  of  establishing  wage  adjustment 
boards  throughout  the  industry. 

(h)  Consideration  of  any  matters  of  general  interest  to  the  Trade, 
whether  industrial,  educational,  economic,  legislative  or  hygienic,  may  be 
taken  up." 

While  the  organization  has  been  in  existence  but  a  few  years, 
F.  A.  Silcox,  Director  of  the  Department  of  Industrial  Rela- 
tions of  the  United  Typothetae,  in  the  article  above  referred  to 
outlines  the  following  as  its  achievements: — 

"1.  The  establishment  of  machinery  for  informal  and  frank  discussion 
of  problems  in  which  both  groups  are  vitally  interested  and  the  mainten- 
ance of  an  industrial  good  will  and  respect  for  one  another's  opinions  which 
will  lay  the  foundation  for  materially  better  industrial  relations  through- 
out the  industry. 

2.  Adoption  of  cardinal  principles  to  guide  wage  negotiations  on  the 
basis  of  joint  investigation  and  recognition  of  the  facts  as  to  economic 
conditions  in  the  industry. 

3.  Provisions   looking  toward   the   constructive  handling   of   the   ap- 
prenticeship problem — such  as  a  standard  percentage  ratio  which  appren- 
tices' wages  should  bear  to  those  of  journeymen  for  each  year  of  apprentice- 
ship; the  establishment  locally  of  joint  apprenticeship  committees  author- 
ized to  enforce  apprenticeship   contract  regulations;    methods   of   making 
surveys  to  determine  number  of  apprentices  needed  and  the  like. 

4.  A  standard  International  Arbitration  Agreement  form  recommended 
for  all  contractual  negotiations. 

5.  The  agreement  through  mutual  legislative  negotiations  for  the  in- 
troduction on  May  1,  1921,  of  the  44-hour  week,  in  the  union-employing 
sections  of  the  industry. 


TRADE  ASSOCIATIONS  AND  LABOR  145 

6.  Standard   Cost  of  Living  Readjustment  Clause,   recommended  for 
local  contracts. 

7.  Establishing  joint  committees  to  consider  shop  practices  and  the 
possibilities  of  greater  standardization." 

By  far  the  most  important  effort  to  correlate  the  efforts  of 
all  factors  in  industry,  including  labor,  to  secure  higher  stand- 
ards of  integrity  and  efficiency  is  the  program  for  the  or- 
ganization of  the  American  Construction  Council.  Over  two 
hundred  trade  associations  producing  materials  for,  or  engaged 
in  the  construction  industries  have  been  invited  to  participate. 
Architects,  engineers,  contractors,  material  and  equipment 
manufacturers  and  dealers,  bond,  insurance,  and  real  estate  in- 
terests, the  construction  departments  of  federal,  state,  and  mu- 
nicipal governments,  and  -public  utilities  are  all  expected  to 
unite  in  this  movement.  The  building  trades  department  of  the 
American  Federation  of  Labor  has  been  asked  to  become  a  mem- 
ber. A  number  of  large  associations  are  actively  participating 
in  the  preliminary  work  of  organization.  The  former  Assistant 
Secretary  of  the  Navy,  Franklin  D.  Roosevelt,  has  been  asked 
to  accept  the  Presidency  of  the  Council.  The  Council  promises 
to  be  a  great  "town  meeting"  of  the  construction  industries. 
The  purposes  of  the  Council  has  been  stated  by  its  organizers 
in  the  following  language : — 

"The  formation  of  a  code  of  ethics  acceptable  to  the  industry  and 
to  the  public : 

"The  gathering  of  adequate  statistics  so  that  the  industry  may 
operate  intelligently.  While  there  are  partial  statistics  collected  by 
many  sources,  they  have  not  been  brought  together  and  interpreted  in 
the  light  of  all  the  facts : 

"A  reduction  of  the  national  shortage  of  building  mechanics  and  the 
establishment  of  the  necessary  apprenticeship  system: 

"A  national  study  of  building  codes  and  the  working  out  of  a  pro- 
gram for  carrying  the  recommendations  into  effect: 

"A  revision  of  the  existing  freight  rates  on  construction  materials: 

"A  stabilization  of  the  Construction  Industry  to  mitigate  the  evils 
of  seasonal  employment  and  the  trade  migration  of  labor: 

"The  encouragement  of  local  building  shows  and  the  adoption  of 
a  publicity  program  capable  of  giving  the  public  an  adequate  concep- 
tion of  the  magnitude  and  work  of  the  Construction  Industry." 


146  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

The  formation  of  this  Council  represents  a  great  organized 
effort  to  apply  the  conference  method,  the  method  of  common 
counsel  in  the  betterment  of  conditions  in  the  industry  with  due 
regard  to  the  protection  of  the  interests  of  the  public.  One  of 
the  most  significant  features  of  the  Council,  adopted  after  ma- 
ture consideration  by  the  leading  business  men  of  a  number  of 
industries,  is  the  participation  of  the  labor  organizations  in  the 
Council  for  the  consideration  of  the  great  common  problems  of 
the  industry. 

If  our  industrial  councils  give  due  consideration  to  the  public 
interests,  if  they  are  organized  and  conducted  in  good  faith,  if 
they  do  not  attempt  to  arbitrate  or  participate  directly  in  con- 
troversies but  are  maintained  as  an  agency  for  common  counsel 
where  representatives  of  capital,  labor,  and  the  public  can  meet 
for  the  development  of  constructive  programs  upon  which  there 
is  a  possibility  of  agreement,  they  ought  to  become  great  forces 
for  progress  in  industry.  Any  plan  worked  out  in  conference  is 
bound  to  get  much  farther  than  a  plan  forced  by  some  factor  of 
an  industry  upon  another  simply  because  that  faction  thinks  it 
is  strong  enough  to  dominate  the  situation.  The  mere  oppor- 
tunity for  joint  conferences  and  joint  considerations  of  pressing 
problems  by  producers  of  raw  material,  manufacturers,  distribu- 
tors, laborers  and  professional  men  can  not  fail  to  result  in  far 
greater  progress  than  the  present  method  of  letting  such  prob- 
lems take  care  of  themselves.  There  ought  to  develop  from  such 
organizations  practical  plans  for  the  stabilization  of  employment, 
for  the  trade  education  of  the  worker,  for  the  joint  accurate 
determination  of  facts  as  to  living  costs  and  the  like,  disputes 
concerning  which  often  prevent  a  reasonable  settlement  of  dis- 
putes. If  such  councils  are  conducted  in  a  fair  democratic 
manner  they  ought  to  reduce  industrial  disputes,  lessen  waste, 
stabilize  industrial  conditions  and  further  the  best  interests  of 
the  public.  The  creation  of  such  councils  in  American  industry, 
to  quote  the  language  of  the  sponsors  of  the  American  Construc- 
tion Council,  would  seem  to  be  the  ' '  logical  step  in  the  evolution 
of  our  industrial  system. ' ' 

The  legality  of  constructive  efforts  in  labor  matters  will  not 
be  challenged.33 

33  See  letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover, 
Secretary  of  Commerce,  Feb.  8,  1922.  Appendix  J. 


CHAPTER  IX 
COOPERATIVE  ADVERTISING 

HUGE  sums  are  spent  annually  for  advertising  in  the  United 
States.  This  science  of  organized  mass  salesmanship  so  rapidly 
growing  in  dignity  and  importance  has  become  one  of  the  great 
forces  in  American  industry.  The  development  of  the  factory, 
with  its  resulting  division  of  labor  and  increasing  use  of  ma- 
chinery has  tremendously  enlarged  the  productive  capacity  of 
our  industries  and  the  volume  of  commodities  produced  has 
decreased  prices  as  well  as  standardized  values  during  the  past 
half  century.1  Standards  of  living  have  immeasurably  im- 
proved as  a  result.  The  great  improvements  in  methods  of  com- 
munication and  transportation  and  the  relinquishment  of  many 
of  the  tasks  of  the  home  to  the  factory  have  also  greatly  en- 
larged markets  and  increased  competition.  .  But  while  produc- 
tion has  made  such  great  strides  in  increased  efficiency  and  in 
steadily  lowering  costs  and  prices,  distribution  has  become  more 
chaotic,  and  more  expensive.  With  the  demands  of  the  public 
for  added  expensive  services  of  many  kinds,  the  commercial 
warfare  resulting  from  the  attempts  of  manufacturers  to  change 
or  control  the  methods  of  distribution  and  the  crowding  of  the 
field  with  unnecessary  and  inefficient  distributors,  the  distribu- 
tive branches  of  our  industries  instead  of  handling  this  greatly 
increased  volume  at  lower  costs,  confront  us  with  a  steadily 
increasing  comparative  cost.2  Basically,  of  course,  the  problems 
of  the  two  branches  of  industry  are  different.  In  manufactur- 
ing, the  machine  is  dominant.  In  distribution  the  man  and  the 
human  element  is  the  controlling  factor  which  does  not  permit 
either  of  standardization  or  decreasing  costs  when  the  cost  of 
living  is  steadily  rising.3 

1  TIPPER,  "The  New  Business,"  p.  114,  116. 

2  CHERINGTON,  "Advertising  as  a  Business  Force,"  pp.  30,  44 ;  TIPPEE, 
"The  New  Business,"  pp.  27,  92. 

?  TIPPEE,  "The  New  Business,"  p.  133. 

147 


148  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

The  greatest  single  agency  making  for  improved  distribution 
is  advertising.  Without  it  effective  distribution  of  the  products 
of  commerce  would  be  greatly  hampered.  The  growing  intelli- 
gence of  our  people  combined  with  our  great  system  of  com- 
munication through  magazines,  newspapers  and  other  media  has 
furnished  the  means  whereby  the  seller  of  goods  can  sell  to  the 
multitude  through  the  printed  word  where  the  salesman  can 
only  reach  the  individual. 

But  there  is  a  tendency  for  competitive  advertising  to  be- 
come more  and  more  wasteful  when  the  advertising  policy  of 
"dominating  the  market"  is  followed.  If  adopted  by  all  com- 
petitors in  an  industry,  such  a  policy  may  result  in  forcing  an 
added  expense  on  the  already  excessive  cost  of  distribution  to 
the  consequent  detriment  of  society.  There  is,  of  course,  no 
doubt  that  an  individual  manufacturer  advertising  his  particu- 
lar product  may  create  and  enlarge  demand  for  it  and  that  the 
greater  volume  of  production  secured  may  reduce  his  overhead 
and  selling  costs  and  even  his  manufacturing  costs.4 

The  lowered  cost  per  unit  may  more  than  recoup  him  for  his 
advertising  expenses  permitting  him  to  lower  his  prices  to  the 
benefit  of  the  public.  It  is  beyond  doubt  also  that  the  cumula- 
tive effects  of  many  individual  advertising  campaigns  may 
create  demand.  Many  industries  are  constantly  coming  into 
being  whose  first  problem  is  the  creation  of  new  buying  habits 
and  wants.  It  is  unquestionable  too  that  advertising  by  half 
selling  the  product  reduces  selling  costs  by  lessening  the  time 
and  efforts  of  distributors  and  salesmen  in  making  sales.  But 
there  is  a  law  of  diminishing  returns  on  advertising.  It  is 
doubtful  whether  the  use  of  competitive  advertising  by  all  con- 
cerns in  an  industry  will  be  an  economic  saving  to  the  industry 
unless  all  unnecessary  wastes  and  duplications  are  avoided.  It 
must  be  conceded  that  to  the  extent  it  supplants  or  increases  the 
efficiency  of  more  cumbersome  and  expensive  methods  of  sales- 
manship, advertising  justifies  itself  economically  but  when  it 
fails  to  do  this  it  becomes  merely  a  new  and  costly  competitive 
weapon  of  benefit  to  the  individual  seller,  but  of  doubtful  bene- 
fit to  society.  In  reality  wastes  of  advertising  are  chiefly  the 

*  CHEBINGTON,  "Advertising  as  a  Business  Force,"  p.  430. 


COOPERATIVE  ADVERTISING  149 

wastes  of  competition  and  may  in  fact  be  less  wasteful  than 
other  selling  methods  they  supplant  or  in  part  supplant. 

But  competitive  advertising  of  a  particular  brand  of  a  par- 
ticular commodity  by  an  individual  manufacturer  represents 
only  one  of  the  functions  of  advertising.  Whatever  may  be  the 
economic  value  of  competitive  advertising  between  individuals, 
there  can  be  no  doubt  that  cooperative  advertising  offers  to  an 
industry  an  exceptional  opportunity  for  creative  accomplish- 
ment and  for  action  as  a  composite,  unified  whole  where  indi- 
vidual members  of  the  industry  are  now  working  at  cross  pur- 
poses. Ultimately,  too,  this  form  of  advertising  may  make  pos- 
sible a  substantial  reduction  of  individual  competitive  advertis- 
ing, thus  reducing  the  wastes  which  some  economists  condemn. 
Advertising  has  given  to  American  industry  a  voice  where  be- 
fore it  was  speechless.  By  this  medium  the  message  of  a  great 
industry  free  from  all  contradictions  and  misrepresentations  can 
be  carried  into  millions  of  homes.  The  use  of  advertising  affords 
protection  against  prejudices  and  unjust  attacks  and  an  oppor- 
tunity for  beneficial  effort  of  which  several  hundred  industries 
have  availed  themselves  with  substantial  and  lasting  benefits. 

Uses  of  Cooperative  Advertising. — Association  advertising 
to  justify  itself  must  function  more  effectively  than  would  the 
advertising  of  individual  units.  Its  uses  therefore  must  gener- 
ally be  confined  to  ends  redounding  to  the  common  weal  of  the 
entire  industry.  There  are  many  purposes  for  which  advertising 
may  be  so  employed. 

Enlargement  of  Demand. — The  most  customary  use  of  co- 
operative advertising  is  to  create  and  control  the  demand  for 
the  products  of  the  industry.  It  may  be  employed  to  enlarge 
the  demand  through  the  presentation  of  the  merits  of  the  prod- 
uct. How  much  more  force  and  conviction  should  the  message 
of  an  industry  carry  than  the  advertising  of  an  individual  con- 
cern which  is  concerned  more  with  convincing  as  to  the  merits 
of  a  particular  brand.  Most  of  the  association  campaigns  have 
as  one  of  their  purposes  direct  salesmanship  of  this  character. 
A  number  of  associations  have  found  it  profitable  to  conduct 
educational  campaigns  designed  to  indirectly  create  a  demand 
for  their  products.  The  Portland  Cement  Association  has  ex- 
pended large  sums  in  portraying  the  need  for  and  economic  ad- 


150  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

vantages  to  the  community  and  to  the  nation  flowing  from  the 
construction  of  good  roads,  thus  tending  to  create  a  demand  for 
road  building  materials.  The  merits  of  concrete  for  such  a 
purpose  are  of  course  emphasized.  The  American  National  Live 
Stock  Association,  the  National  Wool  Growers'  Association,  and 
eighteen  other  state  cattlemen's  associations  of  the  country,  have 
united  in  an  advertising  campaign  urging  the  value  of  beef  as 
a  food,  which  campaign  to  the  extent  it  was  successful  would 
of  course  reach  down  through  the  packers  to  the  producers.  The 
Clay  Products  Association  has  advertised  to  create  public  senti- 
ment in  favor  of  better  sanitation,  knowing  that  an  enlarged 
demand  would  benefit  clay  products  along  with  competitive 
products.5  The  Glass  Container  Association  of  America  not 
only  itself  advertises  the  merits  of  glass  containers  but  con- 
tributes to  the  advertising  campaigns  of  other  associations  whose 
products  are  sold  in  glass  containers.6  The  Spring  Wheat  Crop 
Improvement  Association,  a  temporary  organization  of  bank- 
ers, merchants,  implement  dealers,  millers  and  others  in  the 
Northwest,  knowing  that  an  enlargement  of  the  buying  power 
of  the  farmers  would  create  an  added  demand  for  their  products 
or  their  services,  engaged  in  a  campaign  of  education  of  farmers 
to  increase  the  planting  of  wheat.7  The  American  Bankers' 
Association  has  endeavored  by  advertising  to  educate  the  public 
in  habits  of  thrift,  the  indirect  result  of  which  is  to  increase 
bank  deposits.  Working  hand  in  hand  with  the  research  bureau 
of  an  association,  advertising  can  also  create  demand  by  educat- 
ing the  public  as  to  new  uses  of  the  product.  Striking  examples 
of  this  may  be  seen  in  the  extent  to  which  cooperative  organiza- 
tions of  producers  such  as  the  California  Fruit  Growers'  Ex- 
change, the  California  Associated  Raisin  Company,  and  the 
American  Cranberry  Exchange  have  increased  the  demand  for 
their  products  by  educating  the  housewife  as  to  many  appetiz- 
ing and  novel  ways  to  use  these  products.  The  Portland  Cement 
Association,  by  pamphlet  and  other  forms  of  advertising,  has 
presented  to  the  public  every  conceivable  use  of  concrete,  rang- 
ing from  steamships  to  fence  posts,  from  highways  to  tennis 

^Printers'  Ink,  July  22,  1920,  p.  113. 
e  Printers'  Ink,  Dec.  23,  1920,  p.  25. 
7  Printers'  Ink,  Feb.  26,  1920,  p.  141. 


COOPERATIVE  ADVERTISING  151 

courts.  The  lumber  associations,  such  as  the  Arkansas  Soft  Pine 
Bureau,  have  not  overlooked  the  sale  of  their  products,  even  for 
such  a  limited  use  as  toy  building  by  children.  The  Oak  Floor- 
ing Manufacturers'  Association  by  a  campaign  urging  the  lay- 
ing of  oak  flooring  over  old  flooring  created  a  heavy  demand 
for  a  new  grade  of  flooring  specially  designed  for  such  use.  The 
Electric  Hoist  Manufacturers'  Association  is  continually  study- 
ing the  new  uses  to  which  electric  hoists  and  similar  machinery 
may  be  put  and  educating  /particular  industries  through  adver- 
tising as  to  the  possible  use  of  such  machinery  in  such  indus- 
tries.8 The  education  of  the  consumer  as  to  the  proper  methods 
of  preparing  a  product  in  order  to  secure  the  best  results  also 
tends  to  enlarge  demand.  The  American  Cranberry  Exchange, 
for  example,  has  found  it  desirable  to  educate  the  housewife  as 
to  the  proper  methods  and  proper  utensils  to  use  in  cooking 
cranberries. 

Modifying  Seasonal  Demand. — To  some  industries,  the  prob- 
lem of  modifying  the  seasonal  character  of  the  demand  is  of 
far  greater  importance  than  the  enlargement  of  it.  The  seas- 
onal industries  are  confronted  with  waste  in  tied-up  capital,  in 
loss  of  efficiency  in  labor,  and  other  factors  which  have  burdened 
the  public  with  higher  prices  and  reduced  demand.  Coopera- 
tive advertising  has  proved  its  usefulness  in  changing  the  buy- 
ing habits  of  the  people  and  stabilizing  the  demand  in  industries 
of  this  character.  The  California  Associated  Eaisin  Company, 
an  association  of  producers,  has  through  advertising  made  the 
raisin  an  article  of  every  day  consumption,  although  a  few  years 
ago  it  was  a  holiday  product.  The  American  Cranberry  Ex- 
change has  accomplished  somewhat  similar  results.  The  florists 
are  rapidly  stabilizing  the  sale  of  flowers.  The  United  Waist 
League  is  endeavoring  by  advertising  to  secure  greater  stability 
in  the  demand  for  its  products.  The  coal  industry  and  some  of 
our  other  industries  emphasize  the  great  need  of  a  gigantic  edu- 
cational campaign  coupled  with  a  price  inducement  which  will 
flatten  out  the  curve  of  demand  and  lessen  the  burden  on  opera- 
tors, on  labor,  and  on  the  public. 

Education  of  Distributors. — One  of  the  problems  of  distribu- 

s  Printers'  Ink,  April  8,  1920,  p.  19. 


152  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tion  is  to  secure  the  hearty  cooperation  of  dealers  in  the  prod- 
uct. The  friendship  of  the  dealers  toward  the  products  of  an 
industry  is  of  far  greater  value  so  far  as  the  prosperity  of  the 
industry  is  concerned  than  the  good  will  toward  a  few  indi- 
vidual brands  secured  by  a  few  manufacturers  in  independent 
advertising  campaigns.  In  some  cases  the  distributors  may  be 
prejudiced  against  certain  products  through  a  lack  of  knowl- 
edge of  their  merits  or  of  the  proper  methods  of  installation. 
The  Clay  Products  Association  found  it  necessary  through  an 
advertising  campaign  to  educate  distributors  as  to  the  real 
merits  of  their  products  and  to  secure  their  cooperation  in 
pushing  their  distribution.9  The  American  Hardwood  Manu- 
facturers' Association  were  compelled  to  educate  the  trade  as  to 
the  proper  method  of  seasoning  gum  lumber  before  they  were 
able  to  secure  a  proper  distribution.10  A  number  of  the  lumber 
associations,  the  brick  associations,  the  cement  associations,  in 
fact  many  associations  have  found  it  desirable  to  win  the  good 
will  of  distributors  not  only  through  a  general  advertising  cam- 
paign but  also  through  a  limited  campaign  directed  specifically 
at  the  distributors.  Trade  journals  and  other  media  have  been 
employed  to  secure  their  maximum  interest  and  cooperation  in 
sales. 

It  may  be  desirable  also  to  educate  the  dealers  as  to  better 
selling  methods.  The  Oak  Flooring  Manufacturers'  Association 
found  the  practice  of  retailers  in  quoting  flooring  per  thousand 
feet  created  a  false  impression  in  the  minds  of  prospective  pur- 
chasers that  the  price  was  excessively  high.  By  an  advertising 
campaign,  the  association  persuaded  dealers  to  quote  a  lump 
sum  per  room  on  queries  of  prospective  purchasers,  which  has 
had  a  considerable  effect  in  stimulating  demand  and  overcoming 
sales  resistance.11  The  Knit  Goods  Manufacturers  of  America 
publish  a  special  trade  paper  containing  educational  data  de- 
signed especially  to  help  the  dealer  conduct  his  business  on  a 
better  basis.12 

9  Printers'  Ink,  July  22,  1920,  p.  113. 

10  Letter,    C.    E.    Van   Camp,    Manager   Gum   Department,   American 
Hardwood  Mfrs'.  Assn.,  July  7,  1919. 

11  Printers'  Ink,  Nov.  4,  1920,  p.  93- 

12  Printers'  Ink,  April  8,  1920,  p.  133. 


COOPERATIVE  ADVERTISING  163 

Protection  Agwinst  Competing  Industries. — While  most  asso- 
ciation advertising  campaigns  are  concerned  primarily  with  the 
creation  of  demand,  competitive  advertising  to  protect  the  exist- 
ing demand  for  the  products  of  the  industry  may  be  of  tremen- 
dous importance.  Lumber,  brick,  cement  and  hollow  tile  all 
compete  vigorously  in  the  building  market.  Lime  competes  with 
gypsum  and  cement.  Shingles  compete  with  slate,  tile  and  pat- 
ented roofings.  Wooden  auto  wheels  compete  with  wire  and 
other  metal  wheels.  Butter  competes  with  oleomargarine.  One 
food  competes  with  another.  There  are  dozens  of  industries  en- 
gaged in  vigorous  competition.  The  industry  which  does  not 
advertise  is  apt  to  find  the  general  demand  for  its  product  seri- 
ously curtailed,  even  without  the  knowledge  of  the  industry  as 
a  result  of  the  initiative  and  effective  advertising  of  competing 
industries.  This  is  especially  true  where  a  member  of  that  in- 
dustrjr  has  no  means  of  securing  accurate  knowledge  regarding 
the  sales  of  his  competitors  so  as  to  determine  whether  the  situa- 
tion confronting  him  is  peculiar  to  him  or  general  in  the  in- 
dustry. Many  industries  have  for  years  been  advertising  vigor- 
ously to  maintain  their  position  in  competition  with  other  in- 
dustries. The  National  Association  of  Lumber  Manufacturers, 
the  Southern  Pine  Association,  the  North  Carolina  Pine  Associa- 
tion, the  Southern  Cypress  Manufacturers'  Association,  have 
conducted  great  campaigns  amounting  in  the  aggregate  to  mil- 
lions of  dollars  to  maintain  the  position  of  lumber  as  a  building 
and  construction  material.  The  Portland  Cement  Association 
has  conducted  an  equally  comprehensive  campaign  involving  the 
use  of  every  type  of  advertising  media  to  increase  the  use  of 
cement  for  every  possible  purpose.  The  brick  associations,  such 
as  the  Common  Brick  Manufacturers'  Association  of  America, 
the  American  Face  Brick  Association,  and  the  National  Paving 
Brick  Manufacturers'  Association,  have  all  engaged  in  exten- 
sive campaigns  partly  as  a  defensive  measure.  The  National 
Dairy  Council  is  working  through  schools,  women's  clubs,  health 
organizations,  government  departments,  and  is  employing  vari- 
ous advertising  media  to  convince  the  public  of  the  superior  food 
value  and  healthfulness  of  dairy  products  as  contrasted  with 
their  various  substitutes.  The  Allied  Broom  Industry,  a  greatly 
disorganized  industry,  has  organized  an  extensive  campaign  de- 


154  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

signed  in  part  to  meet  the  competition  of  vacuum  cleaners.18 
The  manufacturers  of  linoleum,  in  order  to  protect  the  existing 
demand  for  their  product,  have  also  felt  it  necessary  to  educate 
the  public  as  to  the  methods  of  identifying  their  product  in 
order  to  protect  the  existing  demand  against  the  inroads  of  sub- 
stitutes. Many  other  associations  are  engaged  in  similar  cam- 
paigns. The  single  manufacturer  interested  in  enlarging  his 
own  demand  deems  himself  successful  if  this  result  is  secured. 
That  result,  however,  may  have  no  bearing  upon  the  prosperity 
of  the  industry.  The  total  volume  of  demand  may  in  fact  have 
fallen  off.  Is  it  not  the  part  of  wisdom  for  the  members  of  an 
industry  to  keep  very  closely  in  touch  with  the  developments  in 
competitive  industries  and  to  utilize  the  full  strength  of  their 
industry  in  combating  such  competition? 

Improvement  of  Quality  and  Protection  of  Good  Will. — Even 
within  the  industry,  an  association  may  find  it  useful  to  engage 
in  competitive  advertising.  In  most  industries  there  are  a  cer- 
tain number  of  persons  who  engage  in  questionable  practices, 
who  manufacture  and  sell  articles  of  inferior  quality  and  injure 
the  good  will  of  the  public  for  the  product  of  the  industry.  It 
may  be  that  the  mere  force  of  excessive  competition  has  lowered 
the  general  level  of  quality.  In  such  a  situation  more  than  one 
association,  whether  it  is  selling  a  product  or  selling  a  service, 
has  found  it  worth  while  to  engage  in  an  advertising  campaign 
to  focus  the  demand  on  the  product  or  the  service  of  its  mem- 
bers. Among  many  associations  conducting  campaigns  of  this 
character  are  the  Southern  Cypress  Manufacturers'  Association, 
the  American  Association  of  Advertising  Agencies,  the  Ameri- 
can Wholesale  Lumber  Association,  the  American  Cranberry 
Exchange,  the  Common  Brick  Manufacturers'  Association,  the 
National  Warm  Air  Heating  &  Ventilating  Association,  and 
others.  In  such  a  campaign  it  is  of  course  essential  either  to 
advertise  the  names  of  the  individual  members  of  the  associa- 
tion, which  is  often  unwieldy  or  impracticable,  or  to  identify 
the  members  or  their  products  by  an  association  trade-mark  or 
insignia.  Probably  the  first  and  best  example  of  such  advertis- 
ing is  that  of  the  Southern  Cypress  Manufacturers'  Assn.,  whose 

is  Printers'  Ink,  Dec.  30,  1920,  p.  60. 


COOPERATIVE  ADVERTISING  155 

members  by  reason  of  their  physical  location,  it  is  asserted,  pro- 
duce a  superior  quality  of  cypress.  Despite  the  great  difficulty 
in  working  out  a  practical  trade-mark  for  application  to  a  bulk 
commodity  like  lumber,  the  association  evolved  a  simple  trade- 
mark not  only  identifying  the  lumber  as  the  product  of  a  mem- 
ber of  the  association,  but  also  identifying  the  individual  mem- 
ber producing  it.  This  trade-mark  combines  the  utmost  simplic- 
ity with  distinctiveness.  A  given  number  is  given  to  each 
member  of  the  association  which  is  inserted  in  the  center  of 
the  trade-mark,  with  the  result  that  the  production  of  each 
member  is  identified.  As  a  result,  the  individual  manufacturer 
gains  the  benefit  of  any  good  will  accruing  to  him  and  at 
the  same  time  the  association  can  check  up  the  failure  of  any 
member  to  conform  to  the  standards  of  the  association. 
The  Arkansas  Soft  Pine  Bureau,  the  Common  Brick  Manu- 
facturers' Assn.,  the  National  Warm  Air  Heating  &  Venti- 
lating Assn.,  the  California  Fruit  Growers'  Exchange,  the 
California  Associated  Raisin  Company,  and  various  other 
associations,  have  also  adopted  trade  marks  to  identify  the  prod- 
uct of  members  of  the  association.  Similarly,  the  American 
Wholesale  Lumber  Assn.,  the  Southern  Pine  Assn.,  the  United 
Typothetae  of  America,  the  Associated  General  Contractors  of 
America,  and  other  organizations,  have  adopted  a  special  in- 
signia used  on  the  advertising,  stationery  and  other  papers  ol 
the  individual  members  to  secure  for  the  members  the  benefit 
of  the  good  will  of  buyers  and  public  toward  the  organization. 

Medium  of  Contact  with  fhe  Public. — The  second  great 
group  of  uses  for  association  advertising  involves  the  selling  of 
the  industry  and  its  problems  to  the  public.  In  a  democracy 
where  in  the  last  analysis  public  opinion  is  the  controlling  factor 
in  the  determination  of  the  attitude  of  government  toward  busi- 
ness it  is  extremely  important  that  an  industry  should  have 
some  direct  medium  of  contact  with  the  public  for  the  presenta- 
tion of  facts,  otherwise  public  opinion  may  be  misguided  or 
controlled  by  outside  factors  for  ulterior  purposes.  The  need 
constantly  arises  for  an  industry  to  establish  contact  with  the 
public.  Frank,  open  advertising  usually  offers  a  most  effective 
method  of  approach. 

Thus  association  advertising  may  be  used  to  combat  legisla- 


156  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tion  by  presenting  the  viewpoint  of  industries  both  to  the  public 
and  to  their  representatives  in  Congress.  The  Institute  of 
American  Meat  Packers  used  advertising  on  a  large  scale  to 
fight  what  they  felt  to  be  the  injustices  of  the  meat  packer  legis- 
lation, and  secured  very  substantial  amendments.  The  Com- 
mittee of  American  Ship  Builders  conducted  a  campaign  in  the 
daily  papers  to  advise  Congress  and  the  public  as  to  what  they 
felt  to  be  the  needs  of  American  merchant  marine  in  the  way  of 
legislation.14  The  Authors'  League  of  America  fought  the  postal 
zoning  bill  through  advertising.  The  day  of  the  old-time  lobby- 
ist is  done.  Industries  must  present  their  facts  openly  and 
frankly  and  stand  or  fall  on  the  facts.  Advertising  affords  one 
method  for  a  dignified  and  convincing  presentation.  Closely 
akin  to  this  use,  was  the  campaign  of  the  Association  of  Railway 
Executives  conducted  to  persuade  the  American  public  to  give 
a  fair  trial  to  the  transportation  legislation,  a  campaign  which 
beyond  doubt  had  a  far-reaching  effect. 

Again  an  industry  may  find  it  helpful  to  inform  the  public 
as  to  processes  and  costs  as  well  as  to  give  full  advice  as  to  the 
conditions  which  may  affect  or  control  price.  Unfavorable 
weather  conditions,  for  example,  may  retard  lumber  production, 
producing  a  scarcity  and  consequent  high  prices  which  if  un- 
explained will  arouse  public  resentment.  The  failure  in  the 
supply  of  the  raw  material,  the  demands  of  labor  and  many 
other  causes  may  force  costs  and  prices  to  an  excessive  level. 
If  unexplained,  the  natural  result  is  a  universal  belief  that  the 
whole  industry  is  profiteering.  Would  not  a  nation-wide  ex- 
planation of  the  situation  by  the  industry  in  such  instances  pre- 
serve the  good  will  of  the  public  toward  the  industry  and  tend 
to  prevent  unfavorable  reactions  in  the  form  of  boycotts,  ill- 
timed  legislation  and  the  like?  Already  we  find  some  of  our 
great  industries  selling  themselves  to  the  public,  explaining 
their  difficulties  and  problems  and  the  causes  for  results  which 
an  uninformed  public  is  apt  to  resent.  The  National  Associa- 
tion of  Lumber  Manufacturers  has  engaged  in  a  great  campaign 
outlining  the  economic  facts  underlying  the  industry  and  the 
problems  it  faces.  The  Anthracite  General  Policies  Committee 

i*  Printers'  Ink,  May  13,  1920,  p.  73. 


COOPERATIVE  ADVERTISING  157 

published  a  number  of  advertisements  explaining  the  processes 
and  facts  which  control  the  price  of  anthracite. 

The  National  Association  of  Clothiers  has  presented  facts  to 
establish  that  the  industry  is  making  no  more  than  a  reasonable 
profit  on  its  product.15  The  Associated  Cooperage  Industries 
are  advising  the  public  as  to  the  reason  for  the  high  prices  of 
their  products.16 

Still  other  branches  of  American  industry  have  found  adver- 
tising a  helpful  medium  in  educating  the  public  as  to  the  eco- 
nomic v'alue  of  their  services.  The  increasing  cost  of  living 
has  created  a  growing  feeling  fostered  in  some  quarters  for  com- 
petitive or  other  reasons  that  the  middleman  is  an  economic 
parasite.  The  function  of  the  middleman  as  the  great  preserver 
of  competition,  the  services  of  the  wholesaler  as  banker,  as  ware- 
houseman, as  traffic  man  and  as  disinterested  salesman  are  un- 
known to  the  general  public.  The  wholesaler  more  than  any 
other  factor  in  industry  needs  to  acquaint  the  public  with  the 
economic  services  he  performs.  The  National  Wholesale  Dry 
Goods  Association  and  the  Wholesale  Coal  Trade  Association  of 
New  York  have  conducted  limited  campaigns  of  this  sort,17  but 
the  message  of  the  wholesaler  ought  to  be  carried  to  the  public 
in  a  compelling  way  if  public  movements  and  legislation  based 
on  ignorance  of  economic  facts  but  working  irreparable  harm  are 
to  be  avoided.  One  association,  the  Alfalfa  Growers  of  Cali- 
fornia, reversing  the  picture,  has  employed  cooperative  adver- 
tising as  a  means  of  attempting  the  elimination  of  the  middle- 
man.18 The  Trust  Company  Division  of  the  American  Bankers' 
Association  is  educating  the  (public  through  advertising  regard- 
ing the  services  rendered  by  trust  companies.19  The  American 
Optometric  Association,  the  American  Association  of  Advertis- 
ing Agencies,  the  National  Periodical  Association  and  other 
trade  associations  have  cooperated  in  similar  advertising  pro- 
grams. 

More  than  one  industry  has  found  it  desirable  to  utilize  ad- 

15  Printers'  Ink,  March  11,  1920,  p.  49. 

is  Printers'  Ink,  March  27,  1919,  p.  76. 

IT  Printers'  Ink,  Sept.  16,  1920,  p.  65. 

is  Printers'  Ink,  May  6,  1920,  p.  65. 

i»  Printers'  Ink,  Oct.  21,  1920,  p.  81 ;  Dec.  9,  1920,  p.  105. 


158  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

vertising  as  a  means  of  overcoming  unfounded  prejudices  which 
unchecked  may  do  serious  injury  to  an  industry  and  limit  the 
demand  for  its  products.  The  National  Canners'  Association 
organized  their  great  advertising  program  in  part  to  overcome 
the  prejudice  against  canned  goods,  especially  among  the  for- 
eign elements  of  our  population  who  because  of  the  long  estab- 
lished customs  of  their  own  country  were  not  accustomed  to  eat 
canned  goods.20  A  similar  organized  effort  is  that  of  the  Joint 
Coffee  Trade  Publicity  Committee  designed  to  combat  the  wide- 
spread belief  as  to  the  deleterious  effect  of  the  use  of  coffee.21 
The  California  Olive  Association  because  of  a  few  cases  of  olive 
poisoning  which  received  wide  publicity  were  compelled  to  ad- 
vertise extensively  to  get  the  facts  to  the  public  as  to  the  health- 
fulness  and  careful  manufacture  of  their  product.22  A  number 
of  southern  cotton  mills  advertised  in  the  daily  press  throughout 
the  country  to  convince  the  public  as  to  the  conditions  and  facili- 
ties under  which  their  employees  worked.  To  explain  away 
charges  that  the  production  of  lumber  was  in  the  hands  of  an 
unlawful  trust  or  combination  in  restraint  of  trade  and  also  to 
correct  the  false  notion  as  to  fire  hazards  involved  in  the  use  of 
forest  products,  the  National  Association  of  Lumber  Manufac- 
turers has  at  various  times  appealed  to  the  public  through  the 
medium  of  paid  publicity.23 

Advertising  affords  to  manufacturers  and  producers  a  pow- 
erful weapon  for  a  partial  control  of  distribution.  It  frees 
them  to  a  great  extent  from  the  dominance  of  the  distributors 
by  enabling  them  to  establish  direct  contact  with  the  purchas- 
ing public.  In  times  of  deflation  if  distributors  are  disposed  to 
exact  unreasonable  profits,  the  producing  or  manufacturing 
branch  of  the  industry  by  advising  the  public  as  to  costs  and 
reasonable  prices  can  aid  in  holding  down  the  price  of  the  com- 
modity. Such,  for  example,  was  one  of  the  purposes  of  the  pro- 
posed advertising  campaign  of  the  Motor  Trade  Association.24 
While  it  may  be  a  doubtful  business  policy  for  one  faction  of  an 

20  PHnfers'  Ink,  June  24,  1920,  p.  73. 

21  Printers'  Ink,  Jan.  20,  1921,  p.  33. 

22  Printers'  Ink,  Nov.  11,  1920,  p.  125. 

23  Printers'  Ink,  Feb.  3,  1921,  p.  17;  Hid.,  Sept.  2,  1920,  p.  110. 

24  Printers'  Ink,  April  8,  1920,  p.  20. 


COOPERATIVE  ADVERTISING  159 

industry  to  utilize  advertising  for  this  purpose,  there  is  no  doubt 
that  it  can  be  so  used.  Any  united  use  of  advertising  to  in  any 
way  control  distribution  should  never  be  attempted  without 
first  securing  the  advice  of  an  attorney. 

Other  Uses. — Trade  associations  have  found  advertising  of 
value  when  used  for  many  other  purposes.  The  nation-wide  ad- 
vertising campaign  of  the  United  Typothetae  of  America  was  a 
very  important  part  of  its  program  of  education  which  rehabili- 
tated the  printing  industry  and  established  a  much  better  mo- 
rale among  its  members.  The  Needle  Trade  Association  of  Mary- 
land found  advertising  an  economical  method  of  securing  an 
adequate  supply  of  labor  for  the  industry  because  of  the  greater 
effectiveness  of  larger  space  in  portraying  the  attractive  work- 
ing conditions  in  the  industry.25  The  Spring  Wheat  Improve- 
ment Association,  as  already  mentioned,  used  the  force  of  ad- 
vertising to  secure  an  enlarged  planting  of  wheat.  The  Logan 
District  Mines  Information  Bureau  is  employing  advertising  as 
a  means  of  winning  public  sympathy  in  the  fight  of  the  mine 
operators  against  the  unionization  of  the  West  Virginia  coal 
fields.  The  Philadelphia  Painters'  District  Council  has  ap- 
pealed to  the  public  for  better  working  conditions  through  ad- 
vertising.26 It  is  not  at  all  impossible  that  trade  associations 
might  through  advertising  carrying  an  appeal  to  their  workmen 
increase  the  efficiency  of  their  labor,  increasing  morale  and  cut- 
ting down  labor  turnover,  just  as  individual  companies  such  as 
the  Pierce  Arrow  Company  and  the  American  Multigraph  Com- 
pany have  done  during  the  past  several  years.27  Indeed,  to  al- 
most every  need  or  problem  involving  a  relationship  between  the 
industry  and  other  great  groups  in  the  community  a  forceful, 
dignified  message  by  the  united  industry  through  recognized  ad- 
vertising mediums  can  be  of  great  help. 

Results. — When  a  group  of  level-headed  business  men  such 
as  the  manufacturers  and  distributors  of  paints  and  varnishes 
increase  their  advertising  appropriations  after  several  years  of 
experience  from  $140,000  to  $700,000  per  annum,28  their  belief 

25  Printers'  Ink,  Oct.  9,  1919,  p.  140. 

26  Printers'  Ink,  April  22,  1920,  p.  41. 
2T  Printers'  Ink,  July  24,  1919,  p.  45. 
28  Printers'  Ink,  Dec.  9,  1920,  p.  111. 


160  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

in  the  value  of  cooperative  advertising  is  given  a  rather  forceful 
expression.  The  largest  results  of  advertising  are  often  in- 
tangible results  which  we  are  very  much  prone  to  undervalue. 
The  effect  of  advertising  in  preventing  hostile  legislation  and  in 
maintaining  a  friendly  relationship  with  the  public  may  result 
in  the  most  far-reaching  benefits  to  an  industry.  One  of  the 
most  common  purposes  and  one  of  the  greatest  benefits  of  co- 
operative advertising  is  the  creation  of  that  intangible  value, 
— good  will, — good  will  toward  the  product,  good  will  toward 
the  industry.  Good  will  unfortunately  cannot  be  forthwith 
measured  in  dollars  and  cents.  The  proceedings  of  more  than 
one  trade  association  present  eloquent  testimony  as  to  the  value 
many  business  men  place  on  the  results  attained  through  asso- 
ciation advertising.29  Another  intangible  but  important  result 
is  the  effect  on  the  personnel  of  the  industry.  To  quote  the 
words  of  Noble  T.  Praigg,  Advertising  Counsel  for  the  United 
Typothetse  of  America,  contained  in  a  letter  to  the  writer:  "It 
is  the  history  of  all  advertising  campaigns  that  the  employees 
of  the  enterprise  or  industry  advertising  come  to  regard  the  ad- 
vertising as  their  own  personal  expression.  They  are  proud  of 
what  it  says  about  their  industry  and  they  like  to  live  up  to 
the  policies  which  the  advertising  sets  forth.  This  of  course  is  a 
completely  intangible  benefit  but  is  of  incalculable  value."  But 
much  more  tangible  results  in  many  industries  can  be  cited.  In 
1914  the  manufacturers  of  gum  lumber  found  the  European 
market  shut  off  with  only  a  very  limited  demand  in  the  United 
States  because  of  the  lack  of  understanding  as  to  how  to  prop- 
erly season  the  wood,  in  order  to  prevent  warping  and  twisting. 
The  demand  was  so  small  that  existing  prices  did  not  cover  cost 
of  production.  Organizing  a  great  advertising  campaign  of 
education  coupled  with  effective  trade  extension  work,  the 
American  Hardwood  Manufacturers '  Association  has  created  a 
demand  exceeding  300,000,000  feet  annually,  and  gum  lumber 
is  now  used  in  almost  every  line  of  cabinet  work  as  well  as  for 
many  other  purposes  for  which  other  lumber  is  used.30  The 
Granite  Manufacturers'  Assn.  located  in  the  Barre  granite  dis- 

29  See,  for  example,  Proceedings,  National  Warm  Air  Heating  &  Venti- 
lating Assn.,  1916,  p.  34. 

so  E.  C.  Van  Camp,  Manager  Gum  Department,  Letter,  July  7,  1919. 


COOPERATIVE  ADVERTISING  161 

trict  spent  .considerable  sums  in  advertising  during  the  war 
with  the  result  that  that  section  prospered  as  never  before  while 
conditions  in  competing  districts  throughout  the  country  were 
greatly  depressed.31  The  American  Cranberry  Exchange  in 
1918,  despite  a  season  of  abnormally  warm  weather  extending 
into  January  and  an  acute  sugar  shortage  combined  with  gov- 
ernment limitations  shortening  sugar  consumption  35  per  cent 
below  normal,  marketed  their  crop  much  more  expeditiously 
than  they  had  theretofore  been  able  to  do  without  advertising. 
A  test  campaign  in  Chicago  in  1916  when  the  association  was 
planning  its  program  increased  sales  in  that  territory  50  per 
cent  when  sales  in  other  territories  fell  off.  The  National  Assn. 
of  Greeting  Card  Manufacturers  as  a  result  of  war  saving  propa- 
ganda were  faced  with  what  appeared  to  be  a  forty  per  cent  de- 
mand in  1918,  but  a  hastily  organized  cooperative  advertising 
campaign  secured  for  them  the  greatest  demand  in  the  history 
of  the  business.32  The  campaign  of  the  Stoneware  Manufac- 
turers' Association,  whose  products  were  gradually  going  out  of 
use,  resulted  in  an  increased  demand  for  every  type  of  their 
product,  every  manufacturer  being  oversold  within  one  year.33 
The  Arkansas  Soft  Pine  Bureau  by  a  campaign  continuously 
conducted  since  1912  have  corrected  the  erroneous  ideas  of  con- 
tractors and  builders  as  to  the  value  of  their  product  for  in- 
terior finish  and  greatly  increased  the  demand.34  As  a  result  of 
the  cooperative  advertising  campaign  the  consumption  of  coffee 
increased  twenty-one  per  cent  in  two  and  one-half  years.35  The 
Philadelphia  Laundry  Owners'  Exchange  by  advertising  urging 
the  housewife  to  lessen  her  household  burdens  by  a  larger  use 
of  laundry  facilities  increased  the  size  of  the  average  package 
from  30  cents  to  $1.25. 

Financing  a  Campaign. — The  financing  of  a  cooperative  ad- 
vertising campaign  so  that  all  parts  of  the  industry  receiving 
benefit  will  contribute  fairly  to  its  support,  involves  questions 

si  Letter,  Athol  P.  Bell,  Secretary,  July  10,  1919. 
32  Printers'  Ink,  Dec.  11,  1919,  p.  134. 
sa  Printers'  Ink,  May  20,  1920,  p.  80. 

3*  A.  S.  Lee,  Asst.  Secretary,  Arkansas  Soft  Pine  Bureau,  Southern 
Lumberman,  Dec.  17,  1921,  p.  140. 

as  The  Spice  Mill,  December,  1921,  p.  2169. 


162  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

of  great  difficulty.  A  great  campaign  such  as  that  carried  on 
by  the  paint  and  varnish  industry  required  much  preliminary 
work  to  get  paint  manufacturers,  varnish  manufacturers,  job- 
bers, master  painters  and  others  interested.  Even  the  tea  grow- 
ers of  Formosa,  Ceylon,  Java  and  other  foreign  territories  were 
solicited  to  contribute  to  the  advertising  campaign  of  the  Tea 
Association  of  America.36  It  is  a  wise  policy  to  delay  the  open- 
ing of  a  campaign  until  adequate  funds  and  the  real  interest 
and  cooperation  of  all  elements  of  the  industry  are  secured. 
There  are  several  methods  of  raising  money  for  such  a  purpose. 
First,  some  associations  have  relied  entirely  upon  voluntary  con- 
tributions of  any  amount  by  its  members.  The  National  Warm 
Air  Heating  and  Ventilating  Assn.  raised  $25,000  for  its  first 
campaign  by  voluntary  subscription.37  The  Wholesale  Dry 
Goods  Assn.  raised  an  advertising  appropriation  on  a  voluntary 
basis,  each  member,  however,  im.pliedly  making  his  contribution 
on  the  basis  of  his  volume  of  business.  The  National  Assn.  of 
Greeting  Card  Manufacturers  followed  a  similar  plan,  the  exec- 
utive committee  however  making  suggestions  as  to  what  they 
felt  the  members  should  contribute.38  The  American  Wholesale 
Lumber  Assn.  conducted  a  considerable  trade  journal  campaign 
relying  entirely  upon  contributions  of  advertising  space  by  its 
members,  due  credit  being  given  to  such  members  for  their  gen- 
erosity. The  method  of  raising  funds  by  voluntary  subscription 
without  any  attempt  to  adjust  the  size  of  the  subscriptions  be- 
tween the  different  members  of  the  industry  is  very  unsatisfac- 
tory. The  life  of  the  campaign  is  uncertain ;  it  is  likely  not  to 
be  well  organized;  and  the  burden  placed  upon  the  generosity 
of  individual  members  is  unjust  and  unfair  when  the  result 
of  advertising  reacts  to  the  benefit  of  all  members  of  the  in- 
dustry. 

Secondly,  the  advertising  appropriation  may  be  based  on  a 
fixed  percentage  of  the  sales  of  each  company.  This  method  be- 
comes impracticable  when  different  branches  of  the  industry  are 
contributing  as  the  retailers'  volume  of  sales  for  the  same  quan- 

s«  Printers'  Ink,  Jan.  27,  1921,  p.  86. 

37  Proceedings,  1916,  p.  20. 

ss  Printers'  Ink,  Dec.  11,  1919,  p.  134. 


COOPERATIVE  ADVERTISING  163 

tity  of  goods  will  be  higher  than  the  wholesalers  or  manufac- 
turers because  of  his  higher  price  level.  This  method  also  ac- 
centuates the  sales  idea  tending  to  cause  dissatisfaction  among 
contributors  when  the  purpose  of  the  campaign  may  not  primar- 
ily be  the  stimulation  of  sales. 

Third,  the  assessment  may  be  based  upon  the  gross  shipments 
of  the  members  as  is  the  practice  of  the  American  Face  Brick 
Assn.39  The  assessment  of  the  Oak  Flooring  Manufacturers' 
Association  is  based  on  estimated  shipments  of  each  member  for 
the  year.  The  members  are  billed  in  advance  on  this  basis, 
subject  to  readjustment  being  made  twice  a  year  on  the  basis 
of  actual  shipments  made.  In  this  way,  the  association  gets  its 
funds  in  advance  to  meet  all  bills  promptly  and  through  the  re- 
adjustment all  members  are  placed  on  the  same  footing  as  they 
would  have  been  if  the  assessments  were  paid  after  actual  ship- 
ments were  made.40 

Fourth,  the  total  production  of  the  members  may  be  made 
the  basis  of  the  assessment.  This  is  the  method  employed  by 
the  White  Pine  Bureau. 

Fifth,  probably  the  most  common  and  most  successful 
method  of  an  assessment  is  on  a  certain  unit.  For  the  Assn. 
of  Rice  Millers  of  America,  the  assessment  is  a  certain  charge 
per  barrel;  for  the  Granite  Manufacturers'  Assn.,  per  cubic 
foot;  for  the  Tea  Assn.  of  the  U.  S.,  per  pound;  for  the  Allied 
Broom  Industry,  per  one  thousand  brooms,  and  so  on.  Even 
this  method  may  be  difficult  for  application  where  the  unit  va- 
ries greatly  in  value  and  there  is  a  highly  specialized  produc- 
tion or  handling  of  the  product  by  some  members.  The  Cycle 
Trade  of  America,  Inc.,  finds  itself  in  the  fortunate  position 
where  the  assessment  can  be  based  on  a  single  part  indispensable 
in  the  manufacture  of  bicycles  and  motorcycles.41 

Whatever  method  of  assessment  is  used,  it  is  vital  that  the 
program  be  formulated  for  a  long  pull.  Much  money  has  been 
wasted  in  the  past  in  poorly  planned  one-year  campaigns.  An 
association  ought  rarely  to  engage  in  an  advertising  campaign 
without  first  tying  up  the  contributors  by  contract  for  a  period 

39  Printers'  Ink,  Oct.  28,  1920,  p.  64. 

40  Printers'  Ink,  Nov.  4,  1920,  p.  100. 

41  Printers'  Ink,  Aug.  11,  1921,  p.  19. 


164  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

of  three  or  preferably  five  years.  The  advertising  campaign  of 
an  industry  involving  as  it  often  does  the  education  both  of 
consumers  and  distributors  and  the  overcoming  of  long  existing 
prejudices  requires  time.  The  building  of  a  permanent  good 
will  cannot  be  accomplished  overnight. 

Advertising  Methods. — It  is  impossible  within  the  scope  of 
this  chapter  to  describe  the  methods  employed  by  many  associa- 
tions in  their  campaigns.  Every  advertising  medium  has  been 
employed.  Government  departments,  women's  clubs,  county 
agents'  meetings,  public  schools,  colleges,  universities,  boards  of 
health  have  all  been  utilized  where  their  cooperation  was  proper 
and  effective.  The  ancient  fair  idea  has  been  employed  in  such 
great  exhibitions  as  the  National  Automobile  Show,  the  National 
Dairy  Show  and  the  annual  exhibition  of  the  Assn.  of  Ice  Cream 
Supply  Men.  The  most  modern  of  inventions  such  as  the  motion 
pictures  and  the  radio  are  being  utilized  everywhere.  One  strik- 
ing characteristic  of  the  most  successful  association  advertising 
is  the  use  of  a  timely  slogan  which  emphasizes  the  basic  idea  of 
the  campaign  and  through  repetition  imbeds  itself  in  the  con- 
sciousness of  the  buying  public.  Such  slogans  as  "Say  it  with 
flowers/'  "Save  the  surface  and  you  save  all,"  or  " Concrete  for 
permanence, ' '  are  known  to  nearly  every  one ;  and  each  of  them 
expresses  a  clear  definite  idea  underlying  the  advertising. 

Pitfalls  of  Association  Advertising. — Advertising  has  become 
a  great  science  involving  a  comprehensive  knowledge  of  psy- 
chology, bf  salesmanship,  of  economics,  in  fact  of  all  the  problems 
affecting  business.  The  formulation  of  an  association  campaign 
involves  a  careful  study  of  the  product  and  its  relation  to  com- 
petitive products,  an  analysis  of  existing  and  potential  markets, 
a  knowledge  of  the  factors  and  methods  of  distribution  in  the 
particular  industry.  Advertising  has  a  technical  side  of  its  own. 
Only  an  expert  can  know  the  relative  values  of  the  different 
advertising  media  in  interpreting  a  product  or  an  industry  to 
the  audience  it  is  desired  to  reach.  The  formulation  of  a  great 
association  campaign,  the  preparation  of  advertisements  and  ad- 
vertising literature,  the  devising  of  effective  means  of  securing 
the  cooperation  of  all  branches  of  the  industry  and  of  many  other 
organizations  requires  the  utmost  skill. 

Some  conclusions  or  recommendations  derived  from  the  ex- 


COOPERATIVE  ADVERTISING  165 

perience  of  various  associations  can  be  stated  with  a  reasonable 
assurance. 

First,  it  is  unwise  for  a  trade  association  not  to  employ  an 
advertising  agency  of  the  highest  caliber  preferably  with  associa- 
tion advertising  experience  for  a  campaign  of  this  sort. 

Second,  ample  time  must  be  given  for  the  raising  of  funds, 
planning  of  the  campaign  and  the  establishment  of  contact  with 
the  many  elements  participating  directly  or  indirectly  in  the 
campaign.  An  association  campaign  of  national  scope  requires 
cooperation  not  only  with  the  distributing  branches  of  the  in- 
dustry but  often  with  many  public  organizations  which  may  re- 
quire great  diplomacy  and  tact.  Advertising  experts  must  study 
the  problems  of  the  industry.  Time  taken  to  raise  a  generous 
advertising  fund  and  to  develop  a  well  thought  out  plan,  is  time 
well  spent. 

Third,  the  campaign  should  be  financed  for  at  least  three 
years.  In  dealing  with  the  intangible  results  which  for  the 
most  part  flow  from  associated  advertising,  results  cannot  be 
secured  or  measured  in  one  year.  The  first  year  of  most  asso- 
ciation campaigns  has  been  a  disappointment  and  unless  the 
members  clearly  understand  this  fact  and  bind  themselves  to 
support  the  effort  of  an  association  for  a  fixed  period,  the  pro- 
gram is  in  danger  of  collapse  before  it  is  M(fell  started. 

Fourth,  the  control  of  the  campaign  should  be  placed  in  a 
very  small  committee  consisting  of  men  in  whom  the  other  mem- 
bers have  the  highest  confidence.  The  paint  and  varnish  cam- 
paign, probably  the  most  effectively  organized  and  conceived 
campaign  in  trade  association  history,  is  in  the  hands  of  a 
small  committee  composed  of  the  advertising  directors  of  sev- 
eral companies  in  the  different  branches  of  the  industry.  These 
men  serve  without  compensation.  Both  curtailment  of  expense 
and  expedition  of  action  require  a  small  committee  which  can 
meet  often  for  consultation  with  their  advertising  agent.  This 
is  especially  true  during  the  first  year  when  the  selection  of  an 
advertising  agency  may  involve  consultation  with  many  agents 
and  the  consideration  of  many  proposed  plans. 

Fifth,  complete  (publicity  of  the  details  of  the  proposed  plan 
should  be  furnished  the  individual  members.  Competition  makes 
business  men  naturally  suspicious.  They  are  fearful  that  the 


166  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

moneys  appropriated  for  advertising  may  be  used  to  the  indirect 
benefit  of  certain  individuals  or  factions.  A  small  committee  to 
retain  the  confidence  of  the  association  members  should  advise 
the  membership  fully  of  its  plans. 

Sixth,  the  utmost  care  should  be  used  to  see  that  if  possible 
the  advertising  represents  the  unanimous  voice  of  the  members. 
If  so  worded  or  employed  as  to  favor  any  group  or  product  over 
another,  the  whole  program  will  be  quickly  wrecked. 

Seventh,  an  effective  plan  must  be  devised  before  the  cam- 
paign is  started  so  that  inquiries  resulting  from  such  advertising 
if  they  involve  possible  sales  shall  be  made  available  to  all  mem- 
bers interested  on  a  fair  impartial  basis. 

Finally,  the  means  should  be  provided  for  tying  up  the 
national  campaign  with  the  advertising  campaigns  of  individual 
members.  Trade-marks,  insignia,  slogans  or  other  methods  may 
be  employed  to  enable  each  member  of  the  association  to  di- 
rectly capitalize  the  good  will  secured  by  the  association  cam- 
paign. The  paint  and  varnish  industry  has  an  executive  man- 
ager available  to  assist  all  the  members  in  their  sales  promotion 
work  and  to  synchronize  individual  campaigns  with  the  big  na- 
tional program.  Such  cooperation  not  only  utilizes  the  full 
force  of  the  national  campaign  but  also  impresses  the  members 
with  the  value  of  association  advertising.  The  use  of  any  such 
marks  or  insignia  as  part  of  a  plan  to  fix  prices  would  of  course 
be  unlawful. 

Legality. — There  can  of  course  be  no  question  as  to  the 
legality  of  association  advertising  when  used  to  accomplish  the 
purposes  outlined  in  this  chapter.  Advertising  or  any  other  de- 
vice if  used  as  a  means  of  restricting  trade  is  unlawful,42  The 
usual  purpose  of  advertising  is  to  stimulate  rather  than  to  re- 
strain trade.  But  it  is  possible  for  advertising  to  be  used  as  a 
means  of  restraining  competition.  Association  advertising  tied 
up  with  a  common  trade-mark  might  conceivably  be  used  as  a 
price  fixing  agency.43  Advertising  could  be  used  as  the  medium 
for  libeling  the  products  of  a  competing  industry  or  as  a  black- 

42  Letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover, 
Secretary  of  Commerce,  Feb.  8,  1922,  Appendix  J. 

•*3  Letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover, 
Secretary  of  Commerce,  Feb.  8,  1922,  Appendix  J. 


COOPERATIVE  ADVERTISING  167 

list  or  to  procure  a  boycott.  It  could  be  used  to  misrepresent 
conditions  in  the  industry,  and  through  such  deception  of  the 
buying  public  to  procure  a  high  level  of  prices.  It  could  be 
used  to  bring  about  restriction  of  production  or  other  unlawful 
results.  Such  uses  by  an  association,  however,  are  rather  im- 
probable. It  is  an  established  rule  of  law  that  a  lawful  act  may 
become  unlawful  when  used  to  accomplish  an  unlawful  pur- 
pose. There  is  no  reason  why  this  rule  would  not  apply  to  ad- 
vertising as  to  any  other  act. 

Moreover,  at  least  28  states  have  enacted  statutes  prohibiting 
the  publication  or  circulation  of  false  or  misleading  advertise- 
ments concerning  property  offered  for  sale.44  These  statutes  are 
for  the  most  part  comprehensive  in  their  terms  although  not 
effectively  enforced. 

There  is  little  possibility  of  the  violation  of  any  law  in  the 
advertising  of  a  trade  association.  The  advertising  of  a  trade 
association  is  subjected  to  so  close  a  censorship  in  order  to 
represent  the  united  opinions  of  an  industry,  and  the  policies  of 
the  association  are  so  closely  controlled  by  men  of  high  standing 
and  prestige  in  the  industry,  that  its  quality  is  certain  to  be 
high.  The  betterment  of  advertising  since  the  days  of  the  circus 
and  patent  medicine  advertising  has  been  remarkable.  Through 
such  agencies  as  the  Associated  Advertising  Clubs  of  the  World, 
the  American  Fair  Trade  League,  and  other  organizations,  busi-^ 
ness  men  are  policing  their  own  advertising  in  a  splendid  way. 

Cooperative  advertising  is  one  of  the  finest  developments 
of  the  trade  association  movement.  It  has  enlarged  the  field  of 
advertising,  giving  added  weight  to  this  rapidly  growing  force 
in  our  industrial  life.  It  has  created  markets  where  no  markets 
existed,  removed  friction  and  misunderstanding  between  pro- 
ducer, manufacturer  and  distributor,  bettered  the  relationships 
between  industry  and  government,  and  brought  industry  and 
the  general  public  into  friendly  and  intelligent  contact. 

44  Report  of  Joseph  E.  Davies,  Commissioner  of  Corporations,  on  Trust 
Laws  and  Unfair  Competition,  1915,  p.  517. 


CHAPTER  X 
TRAFFIC  AND  TRANSPORTATION x 

THE  overshadowing  importance  of  our  transportation  system 
to  the  economic  life  of  the  nation  has  been  emphasized  by  the 
war  and  the  developments  since  the  war.  The  increased  ef- 
ficiency of  transportation  has  probably  been  the  greatest  single 
factor  enlarging  competition  until  it  has  become  national  and 
often  international  in  scope.  Production  and  distribution, — in- 
deed the  industrial  life  of  America, — depends  upon  the  swift  in- 
terchange of  goods  through  the  medium  of  the  railroads.  Poli- 
cies and  methods  of  railroad  operation  operate  directly  and 
powerfully  to  retard  or  advance  the  commercial  development  of 
cities,  regions,  industries  and  in  fact  of  the  nation.  Despite  the 
direct  pecuniary  interest  involved  in  the  transportation  situa- 
tion, despite  the  uncertain  and  fluctuating  policies  of  govern- 
mental regulations  which  may  greatly  aid  or  greatly  harm 
American  industry,  the  shipping  public,  generally  speaking,  has 
always  been  inadequately  organized  to  properly  protect  its  in- 
terest either  in  its  dealings  with  the  carriers  or  before  govern- 
mental tribunals. 

Our  system  of  transportation,  our  methods  of  rate  making, 
our  plan  of  regulation  are  all  the  products  of  a  slow  evolution 
in  which  the  varying  practices  and  methods  of  different  regions 
developed  under  varying  physical  and  economic  conditions  and 
under  a  highly  competitive  system  of  railroading  are  being 
gradually  standardized  and  unified  or  modified  as  a  result  of 
wider  experience.  Our  rate  structure  is  complicated  and  in  no 
sense  final.  In  discussing  rates,  the  Interstate  Commerce  Com- 
mission once  well  said : 

"The  Commission  is  dealing  with  a  difficult  problem,  involving 
multitudinous  effects  and  an  infinite  variety  of  modifying  conditions 

i  JOHNSON  AND  HUEBNER,  "Railroad  Traffic  and  Rates,"  published  by 
Appleton,  is  a  comprehensive  treatise  to  which  I  am  indebted  for  consicle.r- 
able  information  contained  in  this  chapter. 

168 


TRAFFIC  AND  TRANSPORTATION  169 

which  make  the  establishing  of  principles  and  the  framing  of  policies 
a  matter  of  slow  evolution."  2 

The  transportation  situation  is  never  static.  The  steady  de- 
velopment of  new  industries,  the  gradual  shift  in  production  of 
some  of  our  basic  commodities  such  as  cotton  and  lumber  from 
one  region  to  another,  the  shifting  of  the  primary  markets, 
the  changing  character  of  the  traffic  in  some  industries  spring- 
ing from  new  methods  of  manufacture  or  transportation,  the 
opening  of  new  transportation  routes,  the  effects  of  water  com- 
petition, the  development  of  truck  competition,  the  requirements 
of  regulatory  bodies  and  many  other  factors  create  an  ever- 
changing  situation  which  may  adversely  affect  industries  in  the 
most  surprising  ways.  There  are  many  phases  of  transporta- 
tion which  may  directly  and  seriously  affect  an  industry.  As 
to  all  such  matters  clearly  the  industry  can  most  effectively 
operate  as  a  unit. 

Rates. — First  in  importance,  of  course,  come  the  rates.  The 
rate  structures  of  this  country  are  constructed  in  different  ways. 
In  the  South,  the  basing  point  system  prevails.  In  the  East,  the 
percentage  tariff  system  is  employed.  In  the  middle  west,  a 
system  of  rate  making  based  on  fixed  differentials  above  or  below 
the  rates  at  the  dominating  trade  centers  at  main  river  crossings 
is  used  while  on  transcontinental  rates  a  system  of  blanket 
or  common  rates  from  a  large  Eastern  territory  on  West  bound 
traffic  has  been  installed  with  a  graded  zone  system  on  East 
bound  traffic.  These  varying  rate  systems  are  delicately  bal- 
anced and  changes  in  one  often  have  a  far-reaching  effect  on 
another.  The  natural  tendency  is  toward  a  gradual  standardi- 
zation of  the  methods  of  rate  making  but  in  this  process  of  re- 
adjustment actions  crippling  industries  are  almost  certain  un- 
less they  are  organized  to  present  facts  to  fully  combat  any  such 
proposed  action. 

"While  there  has  been  a  tendency  among  many  business  men 
to  assume  that  their  transportation  costs  did  not  handicap  them 
providing  the  same  rates  were  paid  by  all  their  competitors,  the 
developments  of  the  past  few  years  have  proven  that  a  high 
level  of  rates  can  depress  business  and  work  great  public  harm. 

2  Advance  in  Rates:  Western  Case,  20  I.  C.  C.  307,  379. 


170  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

The  horizontal  rate  increases  of  the  past  few  years  have  para- 
lyzed the  distribution  of  some  of  our  low  grade  commodities. 
The  movement  of  lumber  from  the  Pacific  Coast  has  been  stifled 
by  the  increase.  The  movement  of  live  stock  and  of  grain  has 
been  greatly  retarded.  The  effect  of  these  horizontal  increases 
imposed  on  all  industries  has  been  clearly  outlined  in  the  follow- 
ing language  of  Secretary  Hoover  and  emphasizes  the  impor- 
tance of  the  maintenance  by  every  industry  of  a  skilled  traffic 
organization  to  give  constant  consideration  to  such  matters : 

"Horizontal  rate  increases  have  thrown  the  relativity  of  these  rate 
scales  out  of  gear;  both  as  to  value  of  commodities  and  zones  of  dis- 
tribution. The  increase  of  the  rate  may  amount  to  5  per  ceftt  on  the 
shippers'  value  of  some  commodities  and  80  per  cent  on  others. 

"Our  great  industries  have  grown  up  in  the  supply  of  the  cheapest 
transportation  in  the  world  for  their  basic  raw  materials,  with  a 
higher  differential  on  their  finished  products.  We  have  many  com- 
plaints of  the  hardship  worked  by  the  upset  in  ratio;  complaints  that 
it  is  readjusting  the  commercial  and  industrial  map  of  the  United 
States;  complaints  that  in  some  industries  the  charge  can  be  passed 
on  to  the  consumer,  while  in  others,  such  as  agriculture,  it  falls 
largely  upon  the  producer;  and  complaints  that  it  is  stifling  pro- 
duction." 3 

Competitive  Rates. — Again  most  industries  have  competitors. 
Lumber  competes  with  brick.  Lime  competes  with  cement. 
Shingles  compete  with  prepared  roofing.  Butter  competes  with 
oleomargarine.  There  are  a  long  line  of  competing  industries  in 
this  country,  yet  it  is  safe  to  say  that  only  the  well  organized 
industries  pay  attention  to  the  rates  on  competitive  products. 
Many  industries  are  wholly  unorganized  so  far  as  action  is  con- 
cerned in  maintaining  their  product  on  a  parity  with  compet- 
ing products  from  a  rate  standpoint.  The  fixing  of  rates  on 
different  commodities  is  at  best  an  inexact  science  because  of  the 
difficulty  in  determining  and  allocating  the  costs  of  transporta- 
tion between  different  commodities  and  of  the  necessity  of  giv- 
ing due  weight  to  other  factors  such  as  competition  between  the 
carriers,  water  competition,  and  so  on.  Industries  must  be  vigi- 

s  Address  of  Hon.  Herbert  Hoover,  Secretary  of  Commerce  before  the 
Chamber  of  Commerce  of  the  United  States,  Atlantic  City,  May  7,  1921. 


TRAFFIC  AND  TRANSPORTATION  171 

lant  if  they  are  not  to  be  discriminated  against  in  an  indirect  way, 
— a  discrimination  of  which  they  may  not  be  even  aware  without 
an  expert  traffic  organization  to  ascertain  their  rights  in  the  sit- 
uation. 

Rates  on  Raw  Materials. — Important  too  are  the  rates  on  raw 
materials.  Every  industry  is  interested  in  getting  its  raw  ma- 
terials at  the  lowest  possible  price.  The  whole  question  of  re- 
adjustment of  rates  of  basic  commodities  compelled  by  the  whole- 
sale destruction  of  existing  relationships  which  flowed  from  the 
horizontal  rate  increases,  makes  it  important  that  industries 
should  make  their  weight  felt  before  the  Interstate  Commerce 
Commission  and  other  governmental  bodies  in  securing  normal 
rates  on  their  raw  materials.  Such  action  is  essential  if  costs 
are  to  be  reduced  and  business  permanently  revived. 

Import  Rates. — Again  import  rates  may  be  of  considerable 
moment  to  an  industry.  The  vpractice  of  the  carrier  in  grant- 
ing low  import  rates  from  the  large  importing  centers  to  the  in- 
terior can  partly  nullify  the  operation  of  a  protective  tariff.  On 
the  other  hand,  such  rates  if  granted  on  raw  materials  may  be 
of  great  help  to  an  industry.  Import  rates  because  they  are  not 
ordinarily  used  by  the  American  manufacturer  may  be  entirely 
overlooked  by  them  to  their  consequent  prejudice. 

To  industries  which  export  a  considerable  volume  of  goods, 
the  export  rates  may  be  of  importance  in  aiding  the  sale  of  their 
goods  abroad.  In  fighting  for  attractive  export  rates,  and  in 
acting  as  a  medium  for  expert  advice  and  assistance  to  members 
on  their  foreign  shipments,  a  skilled  traffic  organization  can  be 
of  great  benefit  to  an  industry.  Not  only  the  rates  but  such 
matters  as  wharfage,  handling  and  storing  charges,  demand 
close  scrutiny.  Such  matters  are  of  course  in  the  domain  of  the 
expert  traffic  man. 

Classifications. — Carload  weights;  mixing  privileges,  etc. — 
Changes  in  the  classification  of  commodities  for  transportation 
purposes  also  require  consideration.  A  large  volume  of  our 
commerce  moves  under  so-called  class  rates.  The  commodities 
of  commerce  are  ranged  in  different  classes,  each  class  taking  a 
different  rate.  The  shifting  of  a  commodity  from  one  class  to 
another  can  result  in  a  substantial  increase  in  rate.  The  silk 
industry  was  but  recently  threatened  with  irreparable  injury 


172  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

through  an  attempt  of  the  carriers  to  remove  certain  silks  en- 
tirely from  the  consolidated  freight  classifications.  This  effec- 
tively organized  trade  association  after  strenuous  litigation 
forestalled  such  action.  Changes  in  the  estimated  weights  of 
commodities  received  for  transportation  may  force  heavy  in- 
creases on  industries  as  shown  by  the  recent  changes  in  the  ex- 
press classification.  Carload  minimum  weights  may  be  fixed  in 
such  a  way  as  to  work  inconvenience  on  an  industry  as  for 
example  where  loads  are  fixed  at  so  high  a  figure  that  certain 
commodities  cannot  be  loaded  in  many  of  the  ordinary  cars  in 
use.  Or  if  such  minimum  is  set  too  high,  smaller,  competitors 
can  be  seriously  crippled  in  the  distribution  of  their  product. 
The  differences  in  carload  and  less  than  carload  rates  may  be  so 
large  as  to  work  great  injustice  on  the  smaller  units  of  an  in- 
dustry. The  mixing  privilege,  i.e.,  the  right  given  to  ship  vari- 
ous commodities  in  the  same  car,  sometimes  at  the  carload  rate, 
sometimes  at  less  than  carload  rates,  can  be  made  so  generous 
as  to  greatly  aid  one  industry  over  another.  The  great  meat 
packers,  through  the  generous  mixing  privileges  granted  them 
by  the  carriers  were  making  huge  inroads  on  the  business  of 
the  wholesale  grocers  in  groceries  because  of  the  advantages  in 
lower  rates,  convenience  and  expedition  of  shipments  secured 
through  being  able  to  ship  packing  house  products  and  groceries 
in  the  same  car.  It  has  required  the  services  of  expert  traffic  at- 
torneys and  the  expenditure  of  large  sums  of  money  by  the 
National  Wholesale  Grocers'  Association  to  even  partly  correct 
this  situation.  Packing  requirements  are  constantly  being 
changed,  sometimes  forcing  needlessly  expensive  packages  upon 
an  industry  unless  successfully  combated.  The  manner  in 
which  goods  are  packed  also  frequently  determines  the  freight 
rate  applicable.  Car  service  rules,  spotting  charges,  demurrage 
charges,  penalties,  refrigerator  charges,  are  often  the  medium 
used  to  force  unreasonable  burdens  upon  the  public.  The  whole- 
sale lumber  trade  has  but  recently  secured  the  elimination  of  a 
prohibitive  penalty  on  lumber  cars  detained  which  seriously  in- 
terfered with  the  wholesale  distribution  of  lumber  and  which 
was  imposed  without  regard  to  the  relative  responsibility  of 
carrier  or  shipper  for  detention  of  the  car. 

Private  Cars. — The  private  car  is  rapidly  developing  into 


TRAFFIC  AND  TRANSPORTATION  173 

an  intolerable  abuse  in  our  transportation  system.  It  is  a  most 
convenient  vehicle  for  discriminations  and  other  unfair  prac- 
tices. The  private  car,  for  example,  is  rapidly  monopolizing  the 
distribution  of  dairy  products  to  the  smaller  towns  in  the  hands 
of  the  great  meat  packers  by  reason  of  the  fact  that  the  volume 
of  traffic  moving  to  these  smaller  towns  will  not  warrant  the 
maintenance  of  both  a  public  refrigerator  car  system  and  a 
private  refrigerator  car  system.  The  control  of  a  large  part  of 
the  volume  of  the  traffic  by  the  packers  plus  their  control  of 
private  cars  places  them  in  a  position  to  prevent  the  installa- 
tion of  a  public  refrigerator  car  service  to  thousands  of  towns 
thus  excluding  their  smaller  competitors.  The  packers  are  also 
permitted  to  use  private  refrigerator  cars  for  the  transportation 
of  non-perishable  products  mixed  with  perishable  goods  which 
not  only  wastes  space  in  such  cars  which,  in  view  of  the  re- 
frigerator car  shortage  in  the  country  could  be  filled  with  per- 
ishable goods,  but  also  enables  them  to  secure  an  expedited  de- 
livery on  their  non-perishable  groceries.  This  is  a  form  of 
competition  which  the  wholesale  grocers  shipping  by  freight  or 
scheduled  refrigerator  car  find  very  difficult  to  meet.  Again 
the  maintenance  of  organizations  of  inspectors  to  trace  and  ex- 
pedite the  movement  of  private  refrigerator  cars  is  certain  to 
result  in  an  unfair  discrimination  so  far  as  the  movement  of 
commodities  is  concerned  if  not  even  to  greater  abuses.  The 
private  car  situation  demands  the  most  careful  consideration  by 
any  industry  affected  by  it. 

Transportation  Emergencies. — In  times  of  transportation 
emergencies,  the  expert  organization  of  an  industry  from  a 
traffic  standpoint  is  of  the  utmost  value.  Our  railroads  have 
not  developed  in  recent  years  in  proportion  to  the  great  increase 
in  productive  capacity  of  American  industry.  The  past  year 
there  has  been  a  large  increase  in  the  number  of  bad  order  cars 
still  further  limiting  the  ability  of  carriers  to  meet  the  trans- 
portation demand  of  the  country.  Car  shortages  have  occurred 
in  the  past  under  more  favorable  conditions;  it  is  certain  that 
serious  car  shortages,  congestions  at  terminals  and  partial 
break-downs  of  our  transportation  system  will  occur  in  the 
future.  With  every  such  emergency  come  embargoes,  priorities, 
penalties  and  other  burdens  on  the  shipper  which  have  disas- 


174  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

trous  effects  on  industry.  The  administration  of  embargoes 
during  the  war,  when  embargoes  were  imposed  and  lifted  with- 
out any  notice  whatsoever  to  the  shipping  public,  when  even 
the  agents  of  the  carriers  had  no  accurate  knowledge  concern- 
ing embargoes  and  the  readiness  with  which  they  were  imposed 
by  the  carriers  with  little  consideration  of  the  possible  harm 
done  to  a  particular  industry  affected  has  shown  not  only  the 
necessity  of  the  organization  of  an  industry  to  protect  itself 
against  their  unnecessary  imposition  but  also  the  great  need  for 
a  system  of  regulation  of  the  manner  of  imposition  and  opera- 
tion. Priority  systems  which  not  only  involve  distinction  be- 
tween so-called  essential  and  non-essential  industries  but  are 
also  administered  under  the  strongest  political  pressure  of  rep- 
resentatives of  different  sections  of  the  country,  can  create  a  sit- 
uation of  great  peril  to  many  industries.  Penalties  sometimes 
induced  by  competitive  interests  seeking  an  undue  advantage  in 
the  distribution  of  their  product  may  gravely  prejudice  the  in- 
terests of  a  section  of  an  industry. 

The  widespread  dissatisfaction  with  the  Transportation  Act 
of  1920,  and  the  demand  for  amendments  and  changes  make  it 
certain  that  the  powers  of  our  regulating  bodies  and  their  rela- 
tionships with  the  railroads  will  be  changed  to  a  considerable 
degree  in  the  future.  Indeed  all  legislation  must  be  adapted 
to  changing  economic  conditions.  Every  industry,  especially 
those  in  which  transportation  costs  represent  a  large  part  of  the 
cost  of  distribution,  should  be  in  a  position  to  aid  intelligently  in 
the  formulation  of  wise  legislation.  With  the  principle  estab- 
lished by  statute  that  the  carrier  shall  establish  rates  high 
enough  to  permit  the  carriers,  under  honest,  efficient  and  econom- 
ical management  and  reasonable  expenditures  for  maintenance 
of  way,  structures,  and  equipment,  to  earn  an  amount  equal  to 
a  designated  percentage  (to  be  fixed  by  the  Interstate  Commerce 
Commission)  of  the  value  of  their  properties  held  for  and  used  in 
the  service  of  transportation,  it  also  becomes  important  that 
every  industry  should  scrutinize  the  costs  of  operation  of  the 
carriers.  If  labor  costs  are  abnormal,  if  excessive  prices  are 
paid  for  supplies  through  interlocking  interests  between  the 
railroads  and  supply  houses,  if  exorbitant  sums  are  expended 
on  car  repairs  by  outside  concerns,  if  the  movement  of  cars  is 


TRAFFIC  AND  TRANSPORTATION  175 

being  generally  interfered  with  through  the  widespread  use  of 
improper  influence  or  the  bribery  of  railroad  employees,  it  is 
the  duty  of  every  industry  to  be  in  a  position  to  marshal  facts 
convincingly  and  comprehensively  for  the  protection  of  the  in- 
dustry and  of  the  general  public.  The  railroad  business  is  not 
a  private  business.  It  is  in  its  very  essence  a  public  business 
affecting  every  shipper  and  in  which  properly  he  has  and  should 
exercise  a  direct  personal  interest  through  the  organization  of 
his  industry. 

It  is  surprising  in  view  of  the  importance  of  the  relations 
between  transportation  and  industry  that  American  industries 
are  not  better  organized  to  handle  traffic  matters.  The  larger 
cities  through  their  local  Chambers  of  Commerce  and  traffic 
managers  are  zealous  in  preventing  discriminations  between  lo- 
calities or  any  other  injustices  which  so  easily  spring  from 
changes  in  transportation  policies  or  rates.  Some  of  the  states 
through  their  railroad  commissions  also  function  effectively  to 
protect  the  interests  of  their  particular  state  but  most  indus- 
tries have  no  traffic  organization,  trained  and  competent  to 
handle  the  constantly  recurring  situations  which  affect  the  in- 
terests of  that  industry  as  a  whole. 

Association  Methods. — Generally  speaking,  there  are  four 
methods  for  the  handling  of  traffic  and  transportation  questions 
by  a  trade  association.  First,  such  problems  may  be  handled 
by  a  regular  standing  committee.  Second,  an  independent  ex- 
pert traffic  association  may  be  employed.  Third,  an  expert  traf- 
fic bureau  may  be  developed  within  the  association.  Fourth, 
an  entirely  separate  traffic  association  giving  its  attention  solely 
to  traffic  questions  may  be  organized. 

The  committee  method  is  by  far  the  most  common,  nearly 
every  association  having  its  traffic  committee.  Usually  the  mem- 
bers of  a  committee  are  business  executives  rather  than  traffic 
experts.  They  find  it  difficult  to  spare  time  for  work  of  this 
character  and  when  attending  hearings  are  unable  to  make  the 
detailed  preparation  necessary  to  the  most  successful  presenta- 
tion of  their  case.  If  the  committee  is  composed  of  men  of 
traffic  experience  who  are  generous  of  their  time,  it  is  of  course 
an  inexpensive  and  reasonably  effective  method  for  an  associa- 
tion to  adopt.  Some  associations,  as,  for  example,  the  National 


176  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Wholesale  Grocers*  Association,  the  American  Wholesale  Lum- 
ber Association,  the  National  Association  of  Sand  and  Gravel 
Producers,  have  handled  some  proceedings  of  great  importance 
by  this  method  in  a  most  efficient  manner. 

It  is  possible  also  to  secure  expert  service  from  a  number  of 
well-established  organizations  specializing  on  expert  traffic  serv- 
ice. They  employ  an  efficient  traffic  and  legal  personnel,  main- 
tain complete  tariff  files  and  are  in  a  position  to  quite  ably  serve 
an  industry.  They  are  of  course  operating  for  a  profit.  They 
cannot  give  their  sole  time  to  the  study  of  the  many  transporta- 
tion factors  affecting  an  industry,  varied  demands  of  many 
clients  are  made  on  their  time  but  they  afford  an  economical 
method  of  handling  traffic  litigation  and  negotiations. 

By  far  the  most  effective  plan,  however,  for  a  well-financed 
association  is  to  maintain  a  traffic  bureau  of  its  own.  Then  an 
expert,  thorough  and  continuous  study  can  be  made  of  the  many 
traffic  questions  affecting  the  industry,  such  as  the  rate  relation- 
ships between  competitive  industries,  the  transportation  condi- 
tions peculiar  to  the  industry,  the  incongruities  and  injustices  of 
the  existing  rates,  the  most  economical  routings  and  similar  mat- 
ters. Such  an  organization  in  the  course  of  time,  secures  also  an 
expert  knowledge  of  the  industry  thus  enabling  them  to  co- 
ordinate their  traffic  knowledge  and  their  industrial  knowledge 
to  the  benefit  of  the  industry.  Complete  tariff  files  and  an  ade- 
quate traffic  library  can  be  developed.  Such  a  bureau  can  be 
rapidly  made  into  a  most  effective  branch  of  a  trade  associa- 
tion's work.  With  a  skilled  personnel  including  if  possible  both 
a  traffic  man  and  a  traffic  attorney  and  a  wealth  of  traffic  data 
affecting  the  industry,  the  association  is  in  a  position  to  quickly 
meet  any  traffic  situation  which  may  develop  with  constructive 
suggestions,  expert  service  and  comprehensive  facts.  A  bureau 
of  this  kind  can  be  of  constant  service  to  individual  members  in 
furnishing  rate  information,  information  as  to  embargoes,  aid- 
ing in  securing  car  supply,  handling  diversions  and  reconsign- 
ments  and  so  on.  Some  bureaus  of  this  character  are  made  prac- 
tically self-sustaining  through  handling  claims  of  their  members, 
or  auditing  freight  bills  on  a  reasonable  basis  of  compensation. 
The  bureaus  of  the  Pacific  Coast  Shippers'  Association,  the 
Georgia-Florida  Saw  Mill  Association,  the  North  Carolina  Pine 


TRAFFIC  AND  TRANSPORTATION  177 

Association,  the  Southern  Pine  Association,  the  Associated 
Cooperage  Industries'  Association  are  typical  of  a  number  of 
such  bureaus  maintained  by  the  trade  associations  of  this 
country. 

It  is  also  possible,  particularly  if  members  of  an  association 
will  not  properly  contribute  to  the  maintenance  of  a  traffic 
bureau  within  the  organization,  to  organize  a  separate  associa- 
tion devoting  itself  solely  to  traffic  matters.  Such  an  organiza- 
tion will  of  course  effect  a  high  degree  of  specialization  to  the 
great  benefit  of  the  industry  and  its  members.  The  Southern 
Hardwood  Traffic  Association  composed  of  some  500  members  is 
a  fine  type  of  such  an  organization.  It  has  worked  most  effec- 
tively in  many  important  cases  involving  rate  adjustments  of 
great  magnitude  and  has  saved  the  industry  large  sums  of 
money.  It  also  publishes  a  rate  book  giving  in  simplified  form 
the  through  rates  from  all  producing  to  all  consuming  terri- 
tories. It  keeps  constantly  in  touch  with  embargoes,  furnishes 
correct  information  to  its  members  on  rates,  corrects  claims,  aids 
its  members  in  securing  a  proper  car  supply,  in  fact  performs 
all  the  services  of  a  traffic  bureau  with  all  the  weight  of  asso- 
ciated activity  behind  it.  Such  an  organization  is  apt  to  be  more 
adequately  financed  than  a  traffic  bureau  within  an  association 
because  of  the  difficulty  in  apportioning  the  budget  between  the 
various  activities  which  always  confronts  an  ordinary  trade  asso- 
ciation. 

National  Industrial  Traffic  League. — Fortunately  for  the 
shippers  of  this  country,  there  has  also  been  in  existence  for 
some  years  the  National  Industrial  Traffic  League,  an  organiza- 
tion composed  of  many  trade  associations  and  other  organiza- 
tions of  shippers  as  well  as  individual  shippers.  Its  purpose  is 
to  protect  all  shippers  without  discrimination.  It  avoids  all 
conflicts  between  industries,  confining  its  activities  to  the 
many  transportation  questions  of  nationwide  scope  which  affect 
all  shippers.  It  has  come  to  be  recognized  by  the  Inter* 
state  Commerce  Commission  as  the  great  representative  of  the 
shippers  of  this  country.  Every  trade  association  of  this  coun- 
try, regardless  of  the  effectiveness  of  its  own  traffic  organiza- 
tion, should  be  a  member  of  this  central  organization,  thereby 
adding  to  its  effectiveness  and  firmly  establishing  one  great  body 


178  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

which  can  speak  quickly  for  the  great  mass  of  shippers  of  the 
country. 

Legality. — There  is  no  question  as  to  the  legality  of  the 
ordinary  traffic  activities  of  a  trade  association.4  Where  com- 
petitive rates  or  privileges  are  involved,  however,  any  organized 
attempt  to  cripple  competitors  by  securing  through  the  rate  on 
large  bodies  of  the  carriers,  rates  or  regulations  unfairly  bur- 
dening competitors,  or  any  attempt  by  presentation  of  false  or 
misleading  facts  to  secure  similar  results  through  any  state  or 
federal  regulatory  body  is  unlawful.  In  recent  years  there  has 
been  evidenced  a  growing  tendency  on  the  part  of  some  asso- 
ciations to  misuse  government  agencies  as  a  means  of  accom- 
plishing restraints  of  trade.  The  thought  evidently  is  that  the 
parties  to  the  restraint  can  safely  hide  behind  the  cloak  of  gov- 
ernmental action.  But  unless  the  facts  were  honestly  presented 
to  such  an  agency  there  is  no  such  protection.  The  deception  of 
an  agency  of  the  government  would  only  augment  the  offense. 
No  more  comprehensive  and  vicious  restraint  of  trade  could  be 
devised  than  the  fraudulent  procurement  by  associations  from 
the  carriers  or  from  the  government  of  rules  and  regulations 
burdensome  upon  competitors.  Such  restrictions  competitors 
cannot  evade  and  their  effect  is  usually  nationwide. 

Section  10,  Paragraph  4,  of  the  Interstate  Commerce  Act 
to  prevent  such  acts  provides  that  any  person  who  induces  or 
attempts  to  induce  any  common  carrier,  subject  to  the  provisions 
of  the  Act,  to  discriminate  unjustly  in  his  favor  or  against  any 
other  consignor  or  consignee  in  the  transportation  of  property, 
or  who  aids  or  abets  any  common  carrier  in  any  such  unjust  dis- 
crimination, shall  be  deemed  guilty  of  a  misdemeanor.  The 
penalty  is  fine  or  imprisonment  or  both.  Parties  to  such  an  ac- 
tion are  liable  also  to  the  party  injured  for  all  damages  result- 
ing from  their  acts. 

4  Letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover,  Secre- 
tary of  Commerce,  Feb.  8,  1922,  Appendix  J. 


CHAPTER  XI 
PROTECTIVE  ACTIVITIES 

Credit  and  Collection  Bureaus. — One  of  the  evils  imputed 
to  the  competitive  system  is  the  lack  of  control  over  credits, 
resulting  in  inflation,  unwise  extension  of  credits,  and  conse- 
quent losses,  the  burden  of  which  must  fall  ultimately  upon  the 
consuming  public.  The  evil  is  a  real  one,  but  it  can  be  at  least 
partially  corrected  through  cooperation  by  the  business  men  of 
each  industry.  Local  trade  bodies  everywhere  have  established 
credit  bureaus,  which  have  raised  the  standards  of  business  re- 
lationship in  their  communities  and  lessened  business  costs.1 
Such  organizations  functioning  in  a  national  way  in  each  in- 
dustry are  of  considerable  value  both  to  the  public  and  to  the 
industry.  They  tend  to  reduce  the  risks  and  losses  which  re- 
sult from  unwise  granting  of  credit.  They  tend  to  weed  out  the 
professional  deadbeat  whose  methods  in  making  purchases  are 
apt  to  be  reflected  in  equally  dishonest  methods  when  dealing 
with  those  to  whom  he  sells.  They  tend  to  curb  undue  inflation 
of  credit  with  its  unhealthy  reactions  and  to  avoid  the  needless 
tie-up  of  great  amounts  of  capital  which  could  be  used  for  pro- 
ductive purposes  with  great  benefit  to  society.  To  the  business 
concern  whose  distribution  is  nationwide,  which  is  unable  to 
maintain  a  close  personal  contact  with  its  customers,  a  credit 
bureau  in  the  trade  association  of  the  industry,  supported  by  all 
the  members  of  the  association,  is  of  great  value.  Its  general 
effect  in  the  improvement  of  conditions  in  the  industry  with  con- 
sequent public  benefits  may  easily  be  very  substantial. 

Protective  Methods. — The  operation  of  an  efficient  credit 
bureau  in  an  industry  is  usually  much  more  difficult  than  the 
maintenance  of  such  a  bureau  in  a  community.  The  large  mem- 

i  For  a  complete  analysis  of  the  organization  and  methods  of  local 
credit  bureaus,  and  a  compilation  of  forms,  see  "Commercial  Organization 
Credit  Bureaus,"  published  by  the  Chamber  of  Commerce  of  the  United 
States. 

179 


180  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

bership  of  an  association,  as  well  as  the  very  large  number  of 
buyers  in  some  industries  make  it  a  difficult  problem  to  evolve 
a  system  of  real  value.  The  organization  must,  of  course,  be 
adapted  to  the  peculiar  conditions  of  the  industry.  The  scope 
of  the  work  of  a  credit  bureau  may  be  along  the  following  lines. 

First,  if  the  membership  of  the  association  is  small,  and  the 
number  of  buyers  not  too  large,  complete  credit  information 
can  be  exchanged.  A  bureau  in  such  an  industry  compiling 
fresh  confidential  data  as  to  the  obligations  of  a  buyer,  his  pay 
habits,  his  business  methods  as  shown  by  past  transactions,  his 
character  and  general  reputation,  can  be  of  infinitely  greater 
value  to  the  concern  participating  in  such  work,  than  data  se- 
cured from  any  ordinary  credit  agency.  Small  compact  asso- 
ciations, such  as  the  Tile  Manufacturers'  Credit  Association,  or 
associations  whose  credit  service  is  localized  to  a  limited  terri- 
tory, such  as  that  of  the  National  Wholesale  Lumber  Dealers' 
Association,  have  been  able  to  develop  complete  credit  informa- 
tion regarding  most  of  the  customers  of  their  members.  The 
latter  association,  through  years  of  operation,  has  built  up  a 
trade  history  of  retail  trade  purchasers,  which  is  invaluable. 

Second,  if  the  number  of  buyers  is  large  in  an  industry,  it 
may  be  physically  impossible  to  go  beyond  the  compilation  of 
information  regarding  those  concerning  whom  members  make 
inquiry.  The  wholesale  branch  of  an  industry  serving  perhaps 
several  hundred  thousand  retailers,  for  example,  can  scarcely  do 
more  than  this.  Some  associations,  such  as  the  Prepared  Roof- 
ing Association,  the  Association  of  Ice  Cream  Supply  Men  and 
the  Associated  Batting  Manufacturers,  on  inquiry  of  a  member, 
circularize  the  members  for  their  experience  with  the  prospec- 
tive buyer,  and  a  composite  report  covering  his  existing  indebt- 
edness, and  pay  habits,  as  shown  by  past  transactions,  is  sent 
to  all  members  who  contribute  information. 

Third,  investigation  may  be  made  only  of  buyers  concern- 
ing whom  members  may  make  complaint,  the  information  being 
kept  on  file  for  the  use  of  members,  or  furnished  to  all  of  them 
in  composite  reports,  coded  so  as  to  protect  the  source  of  the 
information.  There  are  in  every  industry  many  buyers  who 
habitually  engage  in  sharp  practices.  They  take  extra  time  in 
discounting  their  bills  or  make  a  practice  of  filing  unjustified 


PROTECTIVE  ACTIVITIES  181 

complaints.  They  claim  improper  deductions  in  making  settle- 
ment, knowing  the  seller  cannot  go  to  the  expense  of  bringing 
suit  for  very  small  amounts.  They  reject  carload  shipments, 
merely  to  force  a  lower  price,  or  cancel  orders  without  cause. 
There  are  buyers,  too,  who  often  change  the  location  of  their 
business  with  fraudulent  purpose.  To  protect  the  industries 
against  this  class  of  buyers,  the  members  of  the  National  Warm 
Air  Heating  &  Ventilating  Company  report  to  their  Secre- 
tary undesirable  customers  as  they  develop  in  their  business. 
The  National  Boot  and  Shoe  Association  maintains  a  bureau  to 
whom  members  report  flagrant  cases  of  breach  of  contract  or 
their  improper  conduct  by  buyers.  Buyers  who  are  reported 
three  times  in  six  months,  and  those  refusing  to  arbitrate  dif- 
'erences,  are  reported  to  all  the  members.2  The  Central  Paper 
Box  Manufacturers '  Association  also  has  a  system  of  reporting 
delinquent  debtors.3  The  general  epidemic  of  cancellation  on 
the  part  of  buyers  during  the  falling  markets  of  the  past  sev- 
eral years,  has  resulted  in  special  efforts  on  the  part  of  sellers 
to  cope  with  the  situation.  The  American  Association  of  Wool- 
en and  Worsted  Manufacturers  handles  cancellations  through 
its  Unfair  Practices  Committee  and  in  the  event  the  decision 
of  this  committee  is  not  accepted  by  the  customer,  his  name  is 
confidentially  bulletined  to  the  members  of  the  association.4  The 
silk  industry  has  established  a  Bureau  of  Contracts,  which  re- 
Dorts  to  all  its  subscribers  the  names  of  the  concerns  making 
claims  for  relief  from  their  contracts  together  with  a  statement 
of  the  nature  and  the  basis  of  the  claim.5  This  association  is 
employing  accountants  and  technical  experts  to  aid  in  a  fair 
determination  of  the  facts.  The  Millers'  Exchange  has  not  only 
developed  a  system  of  exchange  of  data,  which  gives  the  mem- 
bers accurate  information  on  buyers  who  do  not  perform  their 
contracts,  but  have  also  developed  a  thorough  plan  of  mutual 
indemnity  insurance  against  losses  arising  by  reason  of  the 
refusal  of  purchasers  to  perform  their  agreements. 

In  some  industries  there  appears  to  be  an  equal  need  for  an 

2  Shoe  and  Leather  Reporter,  Jan.  27,  1921,  p.  56. 

3  Proceedings,  Thirteenth  Annual  Convention,  1916. 

4  Printers'  Ink,  July  1,  1920,  p.  66. 
s  Ibid.,  p.  68. 


182  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

agency  through  which  distributors  can  protect  themselves 
against  unreliable  manufacturers.  Just  as  there  are  buyers  who 
engage  in  shady  practices,  so  too  there  are  manufacturers  who 
delay  shipments  on  their  early  low-priced  orders  but  find  no 
difficulty  in  filling  their  later  high-priced  orders,  or  who  skimp 
their  grades  and  ship  inferior  stuff  on  a  rising  market,  pad  in- 
voices, and  what  not.  Obviously,  it  is  a  mutual  benefit  to  every 
member  of  any  association  to  have  available  information  as  to 
the  experience  of  fellow  members  which  would  protect  him 
against  dishonest  traders,  or  those  to  whom  the  extension  of 
credit  is  unwise. 

Finally,  an  association  may  merely  make  an  investigation  or 
statistical  study  of  general  conditions  affecting  credit,  to  in- 
form the  membership  of  existing  conditions  and  their  trend. 
The  National  Wholesale  Druggists'  Association  compiles  infor- 
mation annually,  showing  the  average  number  of  days'  time 
taken  by  buyers  for  payment  of  accounts.  Existing  practice  in 
the  industry,  with  reference  to  such  matters  as  interest  on  past 
due  accounts,  free  goods,  cartage,  drayage,  and  so  on  are  also 
studied.6 

Collections. — A  credit  bureau  may  also  be  effectively  used 
as  a  means  of  bringing  the  group  pressure  of  the  association  to 
bear  on  a  slow  and  delinquent  debtor.  A  member  may  advise 
the  customer  of  his  intention  to  turn  the  account  over  to  the 
credit  bureau  for  collection  and  the  bureau  itself  may  supple- 
ment, if  need  be,  such  action  by  a  letter  without  making  further 
efforts  toward  collection.  Some  associations  extend  their  activi- 
ties to  the  active  collection  of  overdue  accounts.  Among  such 
associations  are  the  National  Warm  Air  Heating  and  Ventilat- 
ing Association,  the  Wholesale  Seedsman's  League,  the  Ameri- 
can Association  of  Nurserymen,  the  Knit  Goods  Manufacturers 
of  America  and  the  National  Wholesale  Lumber  Dealers'  Asso- 
ciation. The  advantages  of  such  action  are  the  strong  morai 
effect  upon  delinquent  debtors,  often  resulting  in  quick  collec- 
tions at  little  expense,  and  the  payment  of  many  small  account* 
which  would  not  admit  of  usual  collection  charges.  An  associa 
tion  can  usually  make  collections  at  less  expense  than  would  bi 

e  Forty-fourth  Annual  Meeting,  pp.  210-335.     See  also  Oil  Paint  atu 
Drug  Reporter,  Oct.  4,  1921,  p.  2. 


PROTECTIVE  ACTIVITIES  183 

involved  in  the  use  of  private  agencies.  The  bureau  of  the  knit 
goods  manufacturers,  for  example,  during  its  first  year  collected 
over  $40,000  in  delinquent  accounts,  at  an  expense  of  about  1.3 
)er  cent.7  There  is,  however,  considerable  objection  in  some  as- 
sociations to  collection  activities  by  an  association  agency,  be- 
cause of  the  fact  that  misunderstandings  arising  in  connection 
with  the  handling  of  an  account,  not  only  antagonize  the  custo- 
mers, but  injure  the  association  as  well.  Not  only  the  customer 
may  extend  his  ill-will  to  the  other  members  of  the  association 
)ut  also  the  member  whose  account  was  handled  may  himself 
ilso  be  dissatisfied  with  the  method  of  handling. 

Legality. — It  is  unlawful  for  an  association  to  establish  and 
maintain  rules  for  the  giving  of  credit  to  dealers  which  have 
he  effect  of  restricting  competition.8  Competition  in  terms  may 

and  sometimes  unquestionably  is  as  important  a  factor  in 
rade  as  the  price  offered.  No  association  can,  therefore,  safely 
idopt  uniform  rules  as  to  the  terms  of  credit  to  be  granted 
»uyers. 

But  on  the  other  hand,  associations  are  justified  in  taking 
'easonable  fair  action  to  protect  themselves  against  delinquent 
iebtors  or  dishonest  dealers.  In  the  Swift  case  cited  above,  the 
Supreme  Court  approved  the  provision  of  the  injunction  issued 
>y  the  lower  court,  providing  that  nothing  in  that  injunction 
hould  be  construed  as  prohibiting  the  defendants  from  "estab- 
ishing  and  maintaining  rules  for  the  giving  of  credit  to  dealers 
vhere  such  rules  in  good  faith  are  calculated  solely  to  protect 
he  defendants  against  dishonest  or  irresponsible  dealers."9 
?he  right  of  persons  to  associate  to  protect  their  interests  by  dis- 
riminations  against  persons  who  fail  to  pay  their  bills  due  to 
nembers  of  the  association  is  fairly  well  established,  provided 
t  is  not  coercive  and  arbitrary.10  State  courts  have  also  been 

7  Report,  Hoy  A.  Cheney,  Secy.,  Knit  Goods  Mfrs.  of  America,  Textile 
Vorld,  May  21,  1921,  p.  25. 

8  Decree,  United  States  vs  Swift  and  Company.    Decree  and  Judgments 
n  Federal  Anti-Trust  Cases,  p.   64.     See  also  Letter,  H.  M.   Daugherty, 
Attorney  General,  to  Herbert  Hoover,  Secretary  of  Commerce,  Feb.  8,  1922, 
Appendix  J.     See  also  p.  258. 

s  Ibid.,  p.  65. 

10  United  States  vs  King,  229  Fed.  275-278   (1915). 


184  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

liberal  in  holding  that  lists  of  delinquent  debtors,  and  even 
agreements  not  to  sell  on  credit  to  delinquent  debtors,  adopted 
by  an  association  in  good  faith  to  lessen  credit  risks,  give  no 
cause  of  action  for  damages  to  the  buyer  who  suffers  a  loss  of 
credit  therefrom.11  Ordinarily  the  buyer  whose  credit  stand- 
ing has  been  impaired  cannot  succeed  in  an  action  for  libel. 
Proof  of  the  truth  of  the  statement  is  of  course  a  complete  de^ 
fense  and  various  courts  hold  that  the  common  interests  of  mem- 
bers of  an  association  render  such  credit  statements  qualifiedly 
privileged,  the  aggrieved  party  therefore  being  compelled  to 
show,  not  only  that  the  statement  was  false,  but  also  that  it  was 
made  with  express  malice.12  There  are,  however,  decisions 
which  do  not  recognize  such  privilege,13  and  when  the  object  is 
not  merely  to  supply  data  to  protect  members  from  extending 
credit  to  such  debtors,  but  rather  to  coerce  the  debtors  into  pay- 
ing accounts  overdue,  such  an  activity  is  condemned.14  The 
Federal  Government  in  a  recent  petition  under  the  Sherman 
Act,  has  charged  as  a  violation  of  the  law  the  action  of  an  asso- 
ciation's members  in  jointly  agreeing  not  to  sell  to  dealers  de- 
linquent in  their  accounts.15  The  only  safe  policy  for  an  asso- 
ciation to  follow,  under  the  existing  state  of  the  law,  therefore 
is  to  enter  into  no  agreements  or  implied  understandings  to  re- 

11  For  a  detailed  discussion  of  the  law,  see  report  of  Joseph  E.  Davies, 
U.  S.  Commissioner  of  Corporations,  on  "Trust  Laws  and  Unfair  Competi- 
tion," p.  732  ff . 

12  Reynolds     vs    Plumbers'    Material    Protective    Assn.,     63     N".     Y. 
Supp.  303    (1900);   affirmed  169  N.  Y.  614    (1902);    Trapp  vs  Dubois,  78 
N.  Y.   Supp.   505    (1902);    Weston  vs  Barnicoat,   175   Mass.   454    (1900); 
Mclntyre  vs  Weinert,  195  Pa.  52    (1900);    Ulery  vs  Chicago  Live  Stock 
Exchange,  54  111.,  App.  233  (1894)  ;  White  vs  Parks,  93  Ga.  633  (1894). 

is  Muetze  vs  Tuteur,  77  Wis.  236  (1890);  Woodhouse  vs  Powles,  43 
Wash.  617  (1906);  Dennby  vs  Northwest  Credit  Assn.,  55  Wash 
331  (1909);  Western  Union  Telegraph  Co.  vs  Pritchett,  108  Ga.  411 
(1899);  Werner  vs  Vogell,  10  Kans.  App.  536  (1901);  Cleveland  Retail 
Grocers'  Assn.  vs  Exton,  18  Ohio,  Circuit  Ct.  321  (1899);  Windisch- 
Mulhauser  Brewing  Co.  vs  Bacom,  21  Ky.  L.  K.  928  (1899);  Nettles  V8 
Somervell,  6  Tex.  Civ.  App.  627  (1894). 

i*  Masters  vs  Lee,  39  Neb.  574    (1894);   Heim  Brewing  Company 
Belinder,  97  Missouri  App.  64  (1902)  ;  Martell  vs  White,  185  Mass.  255. 

is  See  petition,  United  States  vs  Tile  Mfrs'.  Credit  Assn.  et  al,  Jan- 
uary, 1922,  p.  23. 


PROTECTIVE  ACTIVITIES  185 

fuse  to  deal  with  delinquent  or  irresponsible  dealers,  but  merely 
to  act  as  the  medium  through  which  the  experiences  of  mem- 
bers are  confidentially  exchanged. 

Under  no  circumstances  should  a  credit  bureau  be  used  as 
a  means  of  classifying  the  trade,  or  in  any  way  whatsoever  to 
restrict  competition  between  the  members  or  their  customers, 
or  the  parties  from  whom  they  purchase.  So-called  credit  bu- 
reaus of  associations  or  private  credit  agencies  indirectly,  have 
repeatedly  been  used  as  indirect  black  lists  or  white  lists  to 
control  the  channels  of  distribution  and  prevent  direct  sales  to 
consumers  or  others.  There  is  no  question  that  any  such  misuse 
of  a  credit  agency  is  unlawful.16  In  one  case  an  indictment  has 
been  returned  against  association  members  and  convictions  se- 
cured, one  of  the  allegations  of  the  indictment  being  the  report- 
ing of  dealers  to  the  credit  bureau  of  the  manufacturers'  asso- 
ciation for  the  purpose  of  preventing  sales  to  such  dealers.17 

No  association  should  organize  or  conduct  a  credit  bureau, 
except  with  the  counsel  and  under  the  supervision  of  an  attor- 
ney who  has  a  thorough  knowledge  of  the  laws  of  competition. 
In  the  operation  of  such  a  bureau,  the  following  principles 
should  be  closely  adhered  to: 

First,  the  association  should  act  solely  as  the  conduit  for  the 
exchange  of  experiences  of  its  members.  In  other  words,  it 
should  merely  compile  and  distribute  the  naked  facts  without 
reporting  any  conclusion  as  to  the  responsibility  or  acts  of  the 
parties  reported. 

Second,  the  association  should  make  no  recommendation, 
either  express  or  implied  through  its  officers,  or  by  considera- 
tion and  findings  by  special  committees,  as  to  any  action  the 
members  should  take  regarding  parties  concerning  whom  infor- 
mation is  given. 

m  United  States  vs  Hollis  et  al.  (Northwestern  Lumbermen's  Assn.), 
6  Fed.  Anti-Trust  Decisions  976,  990,  996  (1917).  See  also,  consent  de- 
cree, United  States  vs  Hartwick  et  al.  (Mich.  Retail  Lumber  Dealers' 
Assn.).  Decree  and  Judgments  in  Federal  Anti-Trust  Cases,  pp.  649,  655, 
658  ff.;  United  States  vs  Colorado  and  Wyoming  Lumber  Dealers'  Assn., 
ibid.,  633,  668,  669  ff. 

17  Indictment  vs  Belfi  et  al.  (Philadelphia  Tile  Mantel  and  Grate 
Assn.),  Dec.  6,  1917,  p.  6. 


186  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Third,  information  should  be  furnished  in  confidence  to 
members  only  with  proper  safeguards,  through  a  code  system  or 
otherwise  to  make  any  documents  unintelligible  to  outside  par- 
ties. This  is  to  avoid  even  the  possibility  of  libel  suits  against 
the  association  or  members  furnishing  information. 

Fourth,  to  assure  fair,  unbiased  information,  data  furnished 
by  one  complainant  should  not  be  circularized,  especially  when 
the  informant  is  obviously  prejudiced  or  acting  with  malice. 
It  is  human  nature  for  one  party  to  a  trade  controversy  to  be- 
lieve the  other  party  is  dishonest.  Information  secured  from 
one  source  may,  therefore,  be  unfair  and  unreliable.  The  cir- 
culation of  such  information  defeats  the  whole  purpose  of  a 
credit  bureau,  which  is  to  furnish  accurate  information  to  the 
members.  Either  information  reporting  a  buyer  should  not  be 
given  until  a  certain  number  of  complaints  have  been  made 
against  him  which  appear  to  be  supported  by  the  files,  or  upon 
the  receipt  of  a  complaint,  inquiry  should  be  sent  to  the  entire 
membership  and  a  composite  report  giving  the  experience  and 
judgment  of  the  entire  membership,  without  recommendation  by 
the  association  officials  should  be  compiled  and  furnished  the 
members.  A  credit  bureau  thus  conducted  in  a  fair  spirit,  care- 
fully protecting  the  rights  of  all  parties,  can  be  of  great  value  in 
eliminating  to  a  substantial  degree  the  abuses  of  credit  of  which 
economists  complain  in  condemnation  of  the  competitive  system 
of  industry. 

Patents. — The  National  Automobile  Chamber  of  Commerce 
maintains  a  patent  department,  the  primary  purpose  of  which 
is  to  investigate  charges  of  patent  infringements  brought  against 
its  members.  Where  suits  threaten  the  common  good  of  the  in- 
dustry the  Association  has  taken  over  the  defense  of  the  suit. 
When  patents  are  found  to  be  valuable  the  Association  has  se- 
cured licenses  for  its  members  on  a  favorable  basis. 

One  of  the  real  achievements  of  trade  association  history  is 
the  plan  of  cross-licensing  patents  employed  by  this  association 
for  seven  years.18  Under  this  plan  the  more  than  125  automo- 
bile manufacturers  have  entered  into  an  agreement  under  which 

is  "How  Automobile  Men  Are  Banded  Together,"  Alfred  Reeves,  Gen- 
eral Manager,  National  Automobile  Chamber  of  Commerce,  New  York  Eve- 
ning Post,  March  27,  1922. 


PROTECTIVE  ACTIVITIES  187 

they  interchange  patent  rights  without  payment  of  any  money 
consideration.  The  purpose  of  this  plan  is  to  eliminate  patent 
litigation,  to  develop  a  cooperative  spirit  in  the  industry,  and 
to  secure  the  production  of  better  cars  at  lower  costs.  By  mak- 
ing the  engineering  ability  of  the  entire  industry  available  to  all 
members  the  standards  of  American  automobiles  are  bettered. 
The  confidence  of  the  buying  public  the  world  over  in  the 
American  product  is  thus  maintained.  The  plan  does  not  in- 
clude basic  patents  involving  very  important  inventions;  such 
patents  being  exclusively  within  the  control  of  the  individual 
manufacturer.  Nor  does  it  embrace  design  patents,  but  it  does 
include  many  important  patents  involving  many  parts  of  an 
automobile  which  though  important  to  an  industry  are  not  of 
such  an  outstanding  character  that  their  common  use  by  all 
members  would  deprive  the  individual  manufacturer  owning 
such  patent  of  the  competitive  advantage  to  which  he  is  entitled 
as  the  owner  of  a  patent.  Any  company  which  has  been  in 
operation  for  a  year  or  more  and  has  a  reputable  standing  is 
given  the  opportunity  to  join  the  Association,  and  participate 
in  this  arrangement.  A  single  company  putting  in  a  few  pat- 
ents secures  the  benefit  of  licenses  under  about  six  hundred  pat- 
ents. By  permitting  members  to  retain  the  sole  benefit  of  in- 
ventions radically  affecting  the  industry,  if  they  so  desire,  full 
encouragement  is  given  to  the  continuation  of  research  work 
by  all  companies  in  the  industry.  This  plan,  which  is  credited 
to  the  initiative  and  vision  of  Charles  Clifton,  President  of  the 
Pierce  Arrow  Motor  Company,  and  C.  C.  Hanch,  Vice-president 
of  the  Lexington  Motor  Company,  is  a  constructive  achievement, 
— an  example  of  industrial  statesmanship.  By  a  mutual  respect 
for  the  property  rights  of  one  another  needless  litigation  is 
avoided,  quality  of  product  is  greatly  improved,  and  the  prog- 
ress of  the  industry  immeasurably  forwarded. 

Trade-marks  and  Trade-names. — In  a  similar  way  some 
associations  endeavor  to  prevent  conflict  of  interests  between 
their  members  and  others  as  to  trade-marks  and  trade-names. 
All  members  of  such  associations  file  with  the  bureau  of  the  asso- 
ciation all  proposed  trade-marks  or  trade-names  they  intend  to 
use.  It  is  easily  possible  for  a  manufacturer  to  adopt  a  trade- 
mark name,  engage  in  a  considerable  advertising  campaign  to 


188  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

establish  his  brand,  only  to  find  that  some  competitor  has  been 
using  it  for  years.  Under  such  circumstances  there  is  a  ten- 
dency for  both  parties  to  fight  their  rights  out  in  the  courts. 
An  agency  acting  as  a  clearing  house  for  the  industry  in  such 
matters  can  often  secure  the  withdrawal  of  a  name  or  mark 
when  its  illegal  T»e  is  merely  contemplated,  thus  preventing 
not  only  a  wasteful  expenditure  of  money  for  labels,  advertis- 
ing, and  so  on,  but  also  unnecessary  ill-feeling.  Among  the  asso- 
ciations maintaining  such  bureaus  are  the  American  Drug 
Manufacturers'  Association,  the  Silk  Association  of  America, 
and  the  National  Paint,  Oil  and  Varnish  Association.19 

The  work  of  these  bureaus  has  been  most  helpful.  The  Drug 
Manufacturers  have  found  that  one-third  of  the  new  trade- 
names  submitted  to  their  bureau  were  conflicting  with  those  of 
competitors  who  had  established  prior  rights  to  their  use.20 
The  Silk  Manufacturers  have  also  found  their  bureau  of  great 
assistance  in  preventing  conflicting  use  in  numerous  instances.21 

Only  twenty-five  per  cent  of  the  eight  thousand  marks  and 
names  on  record  in  the  trade-mark  bureau  of  the  paint  manufac- 
turers' association  are  recorded  in  the  Patent  Office  in  Wash- 
ington, and  the  bureau,  therefore,  has  been  of  great  value,  in 
enabling  its  membership  to  avoid  unintentional  infringement 
on  the  rights  of  others.22 

Many  trade-names  which  may  not  be  technically  registrable 
under  the  trade-mark  laws  are  of  great  value,  and  no  honest 
manufacturer  desires  to  infringe  upon  them.  The  registration 
of  such  names  with  the  association  bureau  protects  manufac- 
turers in  the  use  of  such  trade-names,  and  may,  of  course,  be 
of  value  in  any  litigation  in  establishing  priority  of  use.  The 
paint  association  has  done  valuable  educational  work  among  its 
members  informing  them  as  to  the  legal  pitfalls  to  be  avoided  in 
the  selection  of  a  trade-mark,  and  the  proper  measures  to  take 

IB  Proceedings,  American  Drug  Mfrs'.  Assn.,  1921,  p.  370;  Forty-sixth 
Annual  Report  Silk  Assn.  of  America,  1918,  p.  39;  Report  of  Trade 
Mark  Committee,  Oil,  Paint  and  Varnish  Reporter,  Dec.  9,  1918,  p.  27. 

20  Proceedings,    Seventh    Annual    Convention,    American    Drug    Mfrs'. 
Assn.,  1918,  p.  39. 

21  Forty-sixth  Annual  Report,  Silk  Assn.  of  America,  1918,  p.  36. 

22  Oil,  Paint  and  Drug  Reporter,  Dec.  9,  1918,  p.  27. 


PROTECTIVE  ACTIVITIES  189 

to  secure  full  protection.  There  can  be  no  question  of  the  legal- 
ity of  such  helpful  work  as  this. 

Designs. — The  Association  of  Dress  Manufacturers  has  in  a 
similar  way  created  a  style  registration  bureau.23  This  bureau 
sketches  and  records  the  original  creations  of  its  members  as  a 
means  of  protecting  their  rights.  It  is  hoped  that  this  agency 
will  be  of  aid  in  eliminating  the  style  pilfering  prevalent  in 
the  industry.  A  bureau  of  this  kind  could  be  of  considerable 
value  in  protecting  its  members  from  unfair  competition  in  the 
form  of  imitative  designs  of  articles  or  containers. 

Insurance. — Some  associations  have  found  the  organization 
and  operation  of  insurance  agencies  not  only  a  means  of  secur- 
ing a  reduction  in  rates,  but  also  a  valuable  means  of  financing 
their  organizations.24 

The  Paint  Trade  Mutual  Fire  Insurance  Company  is  under 
the  control  of  the  Paint,  Oil  and  Varnish  Association.  This 
company  started  without  capital,  now  carries  $5,000,000  of  in- 
surance in  force,  and  during  its  first  ten  years  has  built  up  a 
surplus  of  over  $50,000.  The  purpose  behind  its  promotion  was 
to  lessen  paint  fire  hazard  and  reduce  insurance  premiums  by 
having  rates  fixed  and  risks  rated  by  men  who  knew  something 
about  the  industry.  It  has  succeeded  in  reducing  the  hazards, 
and  has  cut  down  the  rates  in  many  places  very  substantially. 
This  work  is  viewed  by  the  association  as  one  of  its  most  suc- 
cessful cooperative  achievements.25 

The  silk  association  due  to  an  increase  in  transit  liability 
insurance  in  1918  formed  a  stock  company  under  the  name 
Textile  Transit  Insurance  Company,  the  stock  being  taken  by 
members  of  the  association.26  The  purpose  of  this  organization 
is  to  provide  transit  insurance  at  a  rate  determined  by  actual 

23  National   Trade  Associations :    A   Study  by  the  National   Assn.   of 
Manufacturers,  1922,  p.  33. 

24  The  following  associations  handle  insurance  directly  or  in  an  ad- 
visory way:  Silk  Assn.  of  America,  National  Paint,  Oil  and  Varnish  Assn., 
National  Assn.  of  Farm  Equipment  Mfrs.,  National  Assn.  of  Sheet  Metal 
Contractors,   Associated   General    Contractors   of   America,    Southern   Pine 
Assn.  and  American  Coat  and  Suit  Mfrs'.  Assn. 

25  Report  of  Fire  Insurance  Committee:   Reports  of  Committees,  Paint 
Mfrs'.  Assn.  of  the  U.  S.,  Nov.  18,  1920,  p.  13. 

ae  The  Silk  Worm,  February,  1921. 


190  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

losses  plus  a  minimum  overhead.  Statistics  compiled  by  the 
association  on  losses  occurring  while  shipments  were  en  route 
proved  that  an  immense  saving  can  be  made  for  the  members 
of  the  association,  who  prior  to  the  formation  of  this  company 
were  bearing  the  burden  of  undesirable  risks.  Various  state 
hardware  associations  have  also  formed  mutual  fire  insurance 
companies.27  The  Associated  General  Contractors  of  America 
have  formed  a  corporation  known  as  the  Contractors'  Service 
Corporation,  all  of  the  stock  of  which  is  owned  by  the  associa- 
tion or  its  directors.28  This  corporation  is  licensed  to  act  as  a 
broker  to  handle  insurance  and  bonding  business.  The  divid- 
ends in  the  company  in  one  year  amounted  to  $4,500,  although 
only  a  few  of  the  members  did  business  through  the  corporation. 
The  insurance  bonding  committee  of  this  association  asserts  that 
if  the  membership  were  to  give  the  corporation  ten  per  cent  of 
their  business  the  entire  work  of  the  association  would  be 
financed  without  the  assessment  of  any  dues.  There  are  several 
associations  who  handle  employers'  liability  insurance.  Mutual 
insurance  companies  organized  within  an  industry,  even  though 
maintained  in  a  simple  way  may  exert  a  very  healthy  influence 
in  keeping  down  rates  by  reason  of  their  competition. 

Other  associations  deal  with  insurance  in  an  advisory  way 
only.  The  Kefractories  Manufacturers'  Association  has  re- 
cently employed  insurance  experts  to  make  a  general  survey  of 
plants  owned  and  operated  by  the  members.  The  purpose  of  this 
survey  will  be  to  suggest  improvements  to  members  which  will 
reduce  fire  hazards,  to  secure  complete  data  as  to  the  risks  in 
order  to  present  comprehensive  information  to  the  insurance 
rate  bureau,  in  an  effort  to  secure  reduced  rates,  and  also  to 
study  policies  in  order  to  secure  the  maximum  of  coverage  for  a 
minimum  premium.29  The  Southern  Pine  Association,  whose 
members  pay  out  in  insurance  premiums  annually  over  one  and 
one-half  million  dollars  has  likewise  established  an  insurance 
department  in  the  association.30  Extensive  plans  of  saw  mill 

27  Proceedings,  National  Assn.  of  Sheet  Metal  Contractors,  1914,  p.  9. 

28  Bulletin  of  Associated  General  Contractors,  February,  1921,  p.  13. 

29  National  Trade  Assn.:   A  Study  by  the  National  Assn.  of  Mfrs., 
1922,  p.  55. 

so  Ibid.,  p.  157. 


PROTECTIVE  ACTIVITIES  191 

properties  have  been  prepared  upon  which  fire  insurance  rates 
have  been  reduced.  Policies  of  the  members  are  examined  to 
assure  them  proper  protection,  and  the  association  has  also  repre- 
sented its  members  in  the  adjustment  of  fire  losses.  The  Na- 
tional Association  of  Farm  Implement  Manufacturers  also  re- 
tains insurance  advisors  to  protect  its  membership  in  the  placing 
of  insurance.31 

Work  of  this  general  character  may  be  of  great  value.  The 
Insurance  Committee  of  the  National  Fertilizer  Association  re- 
port a  saving  in  insurance  premiums  of  over  $40,000  on  the 
rates  of  stock  fire  insurance  companies  for  26  members  of  the 
association  through  association  handling  of  their  insurance.32 

Missing  Property  Bureaus. — Due  to  an  alarming  increase 
in  silk  thefts  the  silk  industry  was  faced  with  the  necessity  of 
cooperative  action  to  cope  with  the  evil.  The  missing  property 
bureau  was  therefore  created.33  Bulletins  were  sent  to  members 
advising  them  as  to  the  precautions  to  be  taken  in  making  ship- 
ments, regular  bulletins  are  issued  in  which  are  reported  all 
goods  reported  missing,  stolen  or  in  the  no-mark  department  of 
the  common  carriers,  the  publication  of  each  item  being  repeated 
in  each  issue  until  located.  Rewards  are  being  offered  for  the 
prevention  of  thefts.  Records  of  suspects  and  convicted  thieves 
are  being  kept,  express  and  freight  terminals  are  being  watched, 
and  every  effort  is  being  made  to  make  the  stealing  of  silks  a 
hazardous  and  unprofitable  venture.34 

The  Vigilance  Committee  of  the  National  Jewelers'  Board  of 
Trade  has  also  worked  out  an  efficient  system  of  protection 
against  theft.35 

Other  Activities. — The  value  of  credit  bureaus  to  the  mem- 
bers of  an  association  has  already  been  discussed.  Distributors 
of  bulk  commodities  also  often  find  themselves  seriously  embar- 

31  Letter,  H.  J.  Samert,  Secretary,  April  27,  1922. 

32  Proceeding,  Twenty-fifth  Annual  Meeting,  1918,  p.  32. 

as  Forty-sixth  Annual  Meeting,  Silk  Assn.  of  America,  1918,  p.  36. 

34  "Organizing  Against  the  Silk  Thief,"  C.  P.  Russell,  Printers'  Ink, 
Jan.  15,  1920  (vol.  110),  p.  49. 

ss  "Queer  Trade  Problems  Manufacturers  Are  Unravelling  Through  Co- 
operation," C.  H.  Rohrbach  and  John  Allen  Murphy,  Printers'  Ink,  Sept. 
23,  1920,  p.  76. 


192  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

rassed  by  rejections  of  shipments.  Some  buyers  of  the  unscrup- 
ulous type  do  not  hesitate  to  take  advantage  of  the  seller  who  is 
located  at  a  distant  point  and  refuse  shipments  merely  to  secure 
a  reduction  in  price.  Demurrage,  penalties,  and  other  charges 
of  the  carriers  compel  the  shipper  to  make  a  sacrifice  or  pay  ex- 
cessive storage  charges.  To  protect  their  members  the  whole- 
sale lumber  dealers  have  investigated  and  reported  to  their  mem- 
bers the  storage  yards  throughout  the  United  States  which  will 
store  lumber  at  a  reasonable  charge.36  To  further  protect  its 
membership,  this  association,  through  its  counsel,  has  made  ar- 
rangements with  attorneys  in  every  important  producing  and 
distributing  lumber  center  to  handle  the  cases  of  its  members. 

Thus,  in  one  way  and  another  business  men  without  losing 
their  spirit  of  competition  can  work  together  in  the  protection 
of  their  rights.  Such  work  stabilizes  business  conditions  by 
eliminating  unintentional  imposition  on  the  rights  of  others  and 
by  putting  the  whole  force  of  an  industry  against  those  who 
would  violate  the  law  or  the  rules  of  business  decency.  Govern- 
ment itself  is  in  considerable  part  founded  on  the  idea  of  pro- 
tection of  property.  Organized  industry  as  it  aids  in  the  pro- 
tecting of  property  rights  of  its  members  and  others,  supple- 
ments and  makes  more  effective  the  protection  which  Govern- 
ment proposes  to  give  to  industry. 

36  Bulletin,  American  Wholesale  Lumber  Assn.,  Jan.  13,  1922. 


CHAPTER  XII 
COMMERCIAL  ARBITRATION 

IN  every  industry,  there  are  many  things  constantly  creat- 
ing disputes  and  misunderstandings.  The  products  of  the  in- 
dustry may  not  be  standardized  with  the  result  that  the  parties 
are  not  really  agreed  as  to  the  subject  matter  of  their  transaction. 
The  general  practice  in  making  sales  in  some  industries  in  this 
country  is  so  informal  that  important  parts  of  the  transaction  are 
not  even  reduced  to  writing,  which  creates  endless  possibilities 
for  misunderstanding.  Trade  terms  may  have  a  varied  or 
indefinite  meaning  in  different  localities.  The  customs  of  a 
trade  may  be  vague  and  uncertain,  one  party  assuming  the  other 
party  in  making  the  contract  has  in  mind  a  usage  which  the 
other  party  in  fact  in  no  way  recognizes  as  existent.  A  buyer's 
market  or  a  seller's  market,  as  the  case  may  be,  may  enable  one 
party  to  force  an  unfair  advantage  even  though  his  action  vio- 
lates the  law  applicable  to  the  transaction.  The  cumulative 
effect  of  these  and  other  facts  sometimes  creates  a  condition  of 
extreme  distrust  between  the  producing  and  distributing 
branches  of  an  industry,  which  is  most  harmful  in  its  effects.  In 
such  a  situation,  the  costly,  tedious  and  provoking  lawsuit  is  an 
irritant,  rather  than  a  remedy. 

Development  of  Arbitration. — Centuries  ago,  the  merchants 
in  European  countries  sought  to  arbitrate  their  trade  disputes 
through  informal  tribunals  of  their  fellow  tradesmen.  The 
judges  in  those  days,  often  dependent  for  their  income  on  the 
volume  of  cases  in  their  courts,  did  not  look  on  such  action  with 
a  generous  or  philanthropic  spirit,  seeing  in  it  only  what  they 
felt  to  be  an  attempt  to  oust  the  courts  of  jurisdiction  over 
such  matters.  By  their  decisions  they  attempted  to  restrict 
the  use  of  arbitration.  The  precedents  thus  established  in  jeal- 
ousy, have  carried  down  through  the  common  law  to  modern 
times,  greatly  hampering  and  delaying  the  development  of  the 
use  of  arbitration.  But  modern  courts  over-burdened  with  work 

193 


194  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

and  our  state  legislatures  have  given  great  impetus  to  the  move- 
ment for  commercial  arbitration.  The  American  Bar  Associa- 
tion is  now  giving  serious  consideration  to  the  furtherance  of 
federal  and  uniform  state  legislation,  designed  to  greatly 
strengthen  and  encourage  the  use  of  arbitration  generally.1  To- 
day the  business  men  of  America  in  a  fine  spirit  of  cooperation 
are  rapidly  building  up  a  great  quasi- judicial  system  for  the 
settlement  of  trade  differences,  conducted  by  business  men  and 
supplementing  our  courts,  the  beneficial  effects  of  which  it  is 
difficult  to  overemphasize.  The  trade  association  has  been  the 
medium  utilized  and  indeed  is  the  only  practicable  agency 
through  which  arbitration  can  be  developed  in  a  constructive, 
comprehensive  way. 

For  many  years  in  this  country  local  organizations  have 
operated  arbitration  systems.  It  is  only  recently,  however,  that 
the  great  national  trade  associations  representing  entire  indus- 
tries have  begun  to  work  out  arbitration  systems  which  are 
working  efficiently  and  effectively.  Some  of  our  larger  asso- 
ciations have  adopted  complete  plans  for  arbitration;  some  of 
them  provide  for  printed  rules  of  procedure,  fixed  staffs  of  ar- 
bitrators and  even  published  volumes  of  decisions  to  serve  as 
guiding  precedents  for  the  industry.2  The  wholesale  grocers 
and  the  brokers  of  canned  goods  and  dried  fruits  have  in  suc- 
cessful operation  a  system  of  inter-associational  arbitration.3 
Some  twelve  associations  representing  all  the  branches  of  the 

1  Report   of    Committee   on   Commerce,   Trade   and    Commercial   Law, 
American  Bar  Assn.,  1921,  p.  47  ff. 

2  Among  the  national  trade  associations  which  have  adopted  arbitra- 
tion   systems    are    the    following:     American    Wholesale    Lumber    Assn., 
National  Wholesale  Grocers'  Assn.,  Grain  Dealers'  National  Assn.,  Rubber 
Assn.  of  America,   Silk  Assn.  of  America,  Pacific  Coast  Shippers'  Assn., 
National     Wholesale    Lumber     Dealers'     Assn.,     Interstate     Cotton     Seed 
Crushers'    Assn.,    International    Apple    Shippers'    Assn.,    National    League 
of  Commission  Merchants,  Linseed  Assn.,  American  Assn.  of  Nurserymen, 
American  Cotton  Waste  Exchange,   Southern  Pine  Assn.,  National   Assn. 
of  Worsted  &  Woolen   Spinners,  National   Canned   Goods   &   Dried   Fruit 
Brokers'  Assn.,  Knit  Goods  Mfrs.  of  America  and  the  National  Wholesale 
Dry  Goods  Assn. 

s  Rules  &  Regulations  adopted  by  National  Wholesale  Grocers'  Assn. 
and  National  Canned  Goods  &  Dried  Fruit  Brokers'  Assn. 


COMMERCIAL  ARBITRATION  195 

lumber  industry  are  now  working  out  the  details  of  a  plan  in 
which  it  is  hoped  manufacturers',  wholesalers'  and  retailers' 
associations  will  participate.4  The  knit  goods  manufacturers  and 
the  wholesale  dry  goods  dealers  have  adopted  a  uniform  con- 
tract containing  a  clause,  providing  for  arbitration  of  any  dis- 
putes by  an  arbitration  committee,  consisting  of  one  member 
appointed  by  the  president  of  the  manufacturers'  association,  one 
member  appointed  by  the  president  of  the  wholesalers '  association, 
and  a  third  member  selected  by  these  two  appointed.5  The  Amer- 
ican Wholesale  Lumber  Association,  the  Grain  Dealers '  National 
Association,  and  the  Interstate  Cotton  Seed  Crushers'  Associa- 
tion, have  taken  the  revolutionary  step  of  writing  in  their  by- 
laws the  requirement  that  every  member  must  submit  to  arbi- 
tration any  trade  dispute  he  may  have  with  a  customer  or  per- 
son from  whom  he  buys  his  goods.  Could  there  be  a  better 
guarantee  of  the  integrity  of  the  membership  of  a  trade  associa- 
tion than  this? 

Benefits  of  Arbitration. — What  is  the  value  of  an  arbitra- 
tion system  as  a  part  of  the  working  organization  of  an  in- 
dustry?    The  resulting  elimination  in  expenses  and  delays  of 
legal  proceeding,   it  is  scarcely  necessary   to  mention.6     Still 
more  important  is  the  fact  that  the  parties  are  guaranteed  a 
decision  by  a  committee  of  fellow  business  men  thoroughly  con- 
versant with  the  technique  and  customs  of  the  trade  rather  than  , 
by  a  jury  of  laymen  totally  unacquainted  with  the  trade.    Cer-j 
tainly  a  decision  by  one  who  knows  the  intricacies  of  the  trade | 
is  apt  to  be  more  fair  than  the  verdict  of  a  weary  jury.7     But 
these  results  are  the  smaller  results  of  arbitration.     The  spread- 
ing movement  for  arbitration  has  a  large  economic  significance. 

•*  Southern  Lumberman,  Dec.  17,  1921. 

6  Textile  World,  March  12,  1921,  p.  24. 

e  Report  of  Charles  L.  Bernheimer,  Chairman,  Special  Committee  on 
Arbitration  of  the  Chamber  of  Commerce  of  New  York;  see  pamphlet,  Com- 
mercial Arbitration,  issued  1911,  p.  31;  Commercial  Arbitration,  Fred 
Larkin,  Assistant  Secretary,  American  Wholesale  Lumber  Assn.,  Southern 
Lumberman,  Dec.  17,  1921;  Report,  Committee  on  Arbitration,  Silk  Assn. 
of  America,  Forty-sixth  Annual  Meeting,  1918,  p.  31. 

7  Editorial,  American  Lumberman,  Sept.   4,   1920;   Report,  Committee 
on  Arbitration,  Silk  Association  of  America,  Forty-sixth  Annual  Meeting, 
1918,  p.  31. 


196  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Arbitration  strikes  at  the  cause  of  many  business  disputes. 
Particularly  in  our  great  basic  industries  such  as  lumber  and 
coal  where  the  commodity  is  sold  entirely  in  bulk,  the  product 
often  is  only  partially  standardized.  Even  though  fairly  well 
standardized,  the  different  judgments  of  the  buyer  and  the 
seller  create  dispute.  [  Lack  of  standardization  is  a  prolific  cause 
of  trade  differences!  Trade  customs  also  are  of  slow  growth, 
evolving  out  of  myriads  of  transactions  extending  over  long 
periods  of  time  until  they  finally  become  so  definitely  estab- 
lished as  to  become  an  implied  part  of  all  contracts  made.  The 
arbitration  decisions  of  arbitration  committees  composed  of  the 
leading  business  men  of  the  industry  can  be  of  inestimable  bene- 
fit in  fixing  more  clearly  the  standards  of  the  product  and  fixing 
more  definitely  what  is  the  fair  trade  practice.  If  used  as 
precedents  to  be  followed  by  the  industry,  they  can  expedite 
greatly  the  firm  establishment  of  the  practice  as  a  custom  of  the 
trade.  Such  decisions  if  published  by  the  trade  associations  of 
the  industry  will  more  quickly,  clearly  and  definitely  establish 
the  customs  of  the  industry  to  its  great  benefit,8  rather  than 
allow  them  to  evolve  gradually  as  the  offspring  of  endless  dis- 
putes and  lawsuits. 

Arbitration  tends  also  to  strengthen  the  commercial  stand- 
ards of  an  industry.9  There  are  many  controversies  constantly 
arising  which  because  they  do  not  involve  big  sums  will  never 
get  into  the  courts.  Some  business  men,  if  they  can  be  called 
business  men,  prey  upon  that  fact  picking  up  in  the  aggregate 
considerable  sums  of  money  by  forcing  compromises  on  those 
with  whom  they  deal.  Their  repeated  success  tends  to  lower  the 
standards  of  commercial  integrity.  An  arbitration  system  af- 
fording machinery  for  the  settlement  of  these  minor  disputes 
which  may  involve  big  principles  without  compromise  strength- 
ens the  position  of  those  who  do  business  honestly. 

It  need  scarcely  be  pointed  out  that  the  removal  of  the 
causes  of  misunderstanding  as  well  as  the  elimination  of  the 

8  Commercial  Arbitration,  Fred  Larkin,  Assistant  Secretary,  American 
Wholesale  Lumber  Assn.,  Southern  Lumberman,  Dec.   17,  1921. 

9  Pamphlet,  Commercial  Arbitration,  issued  by  Committee  on  Arbitra- 
tion of  Chamber  of  Commerce  of  New  York,  1911,  p.  8;  Editorial,  American 
Lumberman,  Sept.  4,  1920. 


COMMERCIAL  ARBITRATION  197 

strains  and  irritations  of  lawsuits  will  make  for  a  much  better 
spirit  in  an  industry.10  The  spirit  of  an  industry  is  a  substan- 
tial factor  affecting  its  prosperity.  Business  men  bitterly  hostile 
to  one  another  often  indulge  in  unfair  methods  of  competition 
which  come  near  to  producing  business  anarchy.  A  needless  en- 
mity between  two  competitors  has  more  than  once  injured  seri- 
ously an  entire  trade  and  worked  ruin  to  competitors.  A  com- 
pulsory system  of  arbitration  largely  prevents  such  a  possibility. 
The  fact  that  arbitration  machinery  is  ready  for  service,  that 
arbitration  is  compulsory,  results  in  the  immediate  reference 
of  a  dispute  to  arbitration  before  the  controversy  becomes 
acute.  The  business  man  who  refuses  to  abide  by  the  decision 
of  his  fellow  business  men  condemns  himself.  Thus  arbitra- 
tion becomes  a  conserver  of  good  will  and  a  preserver  of  pros- 
perity. 

The  fact  that  a  seller  agrees  to  arbitrate  any  and  all  dis- 
putes wins  business  for  him.  Trade  associations  whose  members 
have  adopted  compulsory  arbitration  have  found  this  one  of  its 
most  valuable  features.11  The  buyer  feels  that  in  the  event  of 
any  misunderstanding  or  possible  mistake  in  delivery,  his  rights 
will  not  be  determined  by  the  seller  on  the  basis  of  his  size  or 
desirability  as  a  future  customer,  but  will  be  guaranteed  by  the 
fair  decision  of  impartial  business  men.  The  seller  oftentimes 
located  far  from  the  point  of  delivery  is  in  equal  measure  pro- 
tected. Arbitration  guarantees  the  integrity  of  the  transaction 
and  immediately  makes  the  party  employing  it  a  desirable  per- 
son with  whom  to  do  business.  British  business  men  have  long 
recognized  this  fact  and  the  arbitration  clause  comes  near  to  be- 
ing a  standard  feature  of  British  contracts.  In  foreign  trade 
particularly  where  the  opportunities  for  sharp  practices  are 
enlarged,  the  need  for  arbitration  machinery  is  great.  To  sup- 
ply this  need,  the  Chamber  of  Commerce  of  the  United  States 
is  entering  into  arrangements  for  arbitration  with  various  com- 

10  Pamphlet,  Commercial  Arbitration,  issued  by  Committee  on  Arbitra- 
tion of  the  Chamber  of  Commerce  of  New  York,  1911,  p.  8;  Letter,  G.  Gash, 
Vice-president,  American  Cotton  Oil  Company,  June   1,   1920.     Foreword, 
Decisions  of  Board  of  Arbitration  of  Pacific  Coast  Shippers'  Association. 

11  Commercial  Arbitration,  Fred  Larkin,  Assistant  Secretary,  American 
Wholesale  Lumber  Assn.,  Southern  Lumberman,  Dec.  17,  1921. 


198  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

mercial  organizations  in  South  America.12  The  great  Interna- 
tional Chamber  of  Commerce  has  in  its  by-laws  a  provision  for 
arbitration  of  commercial  disputes.13  This  organization  is  urg- 
ing the  adoption  of  laws  in  all  countries  which  would  make  valid 
the  awards  of  foreign  arbitration  committees  regardless  of  na- 
tionality. The  Department  of  Commerce  is  cooperating  with 
trade  associations  in  an  effort  to  encourage  the  general  use  of 
arbitration.  At  the  Washington  Commercial  Arbitration  Con- 
ference, held  in  Washington  November  15,  1919,  resolutions 
were  adopted,  urging  the  Secretary  of  State  to  negotiate  treaties 
with  foreign  countries,  providing  that  arbitration  agreements 
in  commercial  contracts  shall  be  valid,  enforceable  and  irrevoc- 
able, and  that  provision  be  made  for  reciprocal  enforcement  of 
such  agreements  by  the  courts  of  the  respective  countries  mak- 
ing such  treaties. 

Here  surely  is  a  splendid  field  for  the  activity  of  every  trade 
association,  based  entirely  on  a  spirit  of  cooperation  yet  mak- 
ing in  every  way  for  the  business  welfare  and  the  good  of  Amer- 
ican industry. 

The  Organization  of  an  Arbitration  System. — An  associa- 
tion adopting  a  plan  of  arbitration  must  first  determine  on  the 
basic  nature  of  its  system,  which  will  depend  on  three  factors. 
First,  it  must  decide  whether  arbitration  so  far  as  its  members 
are  concerned,  shall  be  voluntary  or  compulsory.  Second,  it 
must  determine  whether  its  system  of  arbitration  shall  be  in- 
formal, depending  on  moral  suasion  for  its  efficient  operation  or 
whether  it  shall  be  more  formal  in  character,  relying  upon  pro- 
cedure in  the  courts  if  necessary  for  enforcement  of  awards 
made.  Third,  it  should  be  determined  whether  the  arbitrators 
should  render  their  decisions  solely  on  their  judgment  as  to 
equities  of  the  situation  or  whether  they  should  recognize  in 
their  decisions  the  established  principles  of  law. 

Voluntary    arbitration   for   most    associations    is   the    only 

12  See,  for  example,  pamphlet,  Arbitration  for  Disputes  in  Trade  be- 
tween the  United  States  and  the  Argentine  Republic.  Chamber  of  Com- 
merce of  the  United  States,  September,  1919. 

is  Constitution  &  Rules,  International  Chamber  of  Commerce,  adopted 
at  Paris,  June,  1920,  Art.  VII,  Sec.  12. 


COMMERCIAL  ARBITRATION  199 

method  to  employ  in  beginning  the  use  of  arbitration.14  Most 
members  will  naturally  be  very  cautious  about  agreeing  to  sub- 
mit all  disputes  to  arbitration  until  they  see  for  themselves  its 
application  in  their  industry.  The  defect  of  voluntary  arbitra- 
tion is  that  many  men  will  arbitrate  only  those  disputes  which 
they  feel  certain  of  winning.  The  type  of  disputes  involving 
trade  usages,  contract  methods  and  so  on,  the  arbitration  of 
which  is  most  beneficial  to  the  industry,  will  not  be  submitted. 
Compulsory  arbitration  on  the  other  hand  gives  tone  and  pres- 
tige to  the  organization,  and  wins  for  the  members  the  confi- 
dence and  respect  of  the  trade.15  It  is  an  advertisement  of  the 
quality  of  the  membership.  In  operation  it  tends  much  more 
effectively  to  secure  the  benefits  of  arbitration  already  described. 

The  advantages  of  informal  arbitration  are,  of  course,  its  sim- 
plicity and  informality  which  possibly  tends  to  better  feeling 
and  lessens  expense.  The  weakness  of  too  informal  a  system  lies 
in  the  fact  that  the  enforcement  of  an  award  becomes  difficult 
and  often  impossible,  especially  when  dealing  with  non-mem- 
bers. On  the  other  hand,  too  formal  arbitration  can  readily 
become  a  complicated  system  of  red  tape  which  does  not 
make  for  quick  action  and  tends  to  make  members  suspicious 
of  the  benefits  of  arbitration.  There  have  been  enacted  by  a 
number  of  states  statutes  strengthening  arbitration  and  provid- 
ing different  remedies  for  the  enforcement  of  awards. 

Under  existing  conditions,  there  are  two  general  systems  of 
law  governing  commercial  arbitration.  First,  the  old  common 
law,  which  unless  specifically  abrogated  by  statute,  still  exists, 
and  secondly,  the  statutory  law  of  the  several  states  which  often 
makes  arbitration  clauses  irrevocable  and  provides  new  reme- 
dies. To  take  advantage  of  these  remedies,  however,  the  provis- 
ions of  the  statutes  must  be  strictly  complied  with.  For  an 
association  having  a  membership  extending  over  many  states,  it 
is  almost  impossible  without  involving  too  many  technical  re- 

!*  The  writer  has  been  able  to  find  only  three  national  associations 
which  maintain  compulsory  systems — the  American  Wholesale  Lumber 
Assn.,  the  Grain  Dealers'  National  Assn.  and  the  Interstate  Cotton  Seed 
Crushers'  Assn.  The  operation  of  these  three  systems  has  been  highly 
Buccessful. 

!5  Commercial  Arbitration,  Fred  Larkin,  Asistant  Secretary,  American 
Wholesale  Lumber  Assn.,  Dec.  17,  1921. 


200  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

quirements,  to  formulate  a  system  which  will  comply  with  the 
many  formal  provisions  of  state  statutes.  Under  the  circum- 
stances it  would  appear  best  for  the  large  association  to  adopt 
a  system  of  common  law  arbitration  clearly  establishing  the 
rights  of  the  parties  by  the  use  of  proper  written  documents  so 
that  a  clear  cut  record  can  be  presented  to  the  courts,  if  neces- 
sary for  the  enforcement  of  any  award  made.  Under  such  a 
system,  non-members  participating  are  bound  by  the  awards.  It 
has  enough  of  formality  so  that  unambiguous  records  are  made 
and  decisions  are  rendered  in  such  a  way  that  they  are  helpful 
to  the  entire  industry. 

It  is  entirely  within  the  option  of  an  association  adopting 
a  system  of  arbitration  whether  the  decision  of  the  committee 
shall  be  based  upon  what  the  committee  feels  to  be  the  equities 
of  the  situation  between  the  parties  or  whether  they  shall  also 
consider  basic  legal  principles.  Unless  there  is  a  restriction  in 
the  agreement  of  the  parties  submitting  the  case  to  arbitration, 
arbitrators  have  the  power  to  decide  both  questions  of  law  and 
fact,16  and  the  award  of  arbitrators  is  binding  even  though  con- 
trary to  law.17  Most  associations  permit  their  committees  to 
decide  the  case  without  reference  to  the  law.  Some,  however, 
especially  under  a  compulsory  system  require  that  the  legal 
rights  of  the  parties  be  protected.  The  American  Wholesale 
Lumber  Association,  for  example,  before  referring  the  files  of 
a  case  to  the  arbitration  committee,  first  refer  them  to  their 
counsel,  a  former  chairman  of  the  Federal  Trade  Commission, 
who  prepares  a  statement  of  the  law  applicable,  very  similar  in 
form  to  the  charge  of  a  court  to  the  jury.18  The  committee 
then  applies  the  facts  to  the  principle.  A  similar  method  is 
employed  by  the  Pacific  Coast  Shippers'  Association,  the  South- 
ern Pine  Association  and  the  International  Apple  Shippers' 
Association.19  An  arbitration  system  taking  into  consideration 
legal  principles  has  substantial  advantages.  It  is  only  right 

is  Kleine  vs  Catara,  14  Fed.  Cases  7869,  2  Gall.  61. 

i?  Smith  vs  Smith,  4  Rand  (25  Va.)   95,  101. 

is  Commercial  Arbitration,  Fred  Larkin,  Assistant  Secretary,  Ameri- 
can Wholesale  Lumber  Assn.,  Southern  Lumberman,  Dec.  17,  1921. 

19  Fourth  Annual  Meeting,  Southern  Pine  Assn.,  1918,  p.  44;  Letter, 
R.  G.  Phillips,  Secretary  International  Apple  Shippers'  Assn.,  Oct.  25, 
1920. 


COMMERCIAL  ARBITRATION  201 

that  any  man  who  bases  his  transaction  upon  the  established 
rules  of  society  should  be  protected  as  to  such  rights  particularly 
when  substantial  sums  are  involved  in  an  arbitration  proceed- 
ing. After  all,  it  is  not  the  basic  principles  of  the  law  which  in 
the  last  analysis  represent  the  accumulated  wisdom  of  cen- 
turies of  experience  arising  out  of  a  multitude  of  transactions 
but  rather  the  procedure  of  the  law  with  its  endless  technicali- 
ties, delays  and  legal  difficulties  which  arouse  the  resentment  of 
business  men.  An  arbitration  system  that  fails  to  take  account 
of  legal  principles  has  nothing  to  tie  to.  Its  decisions  will  be 
inconsistent  and  cannot  be  guiding  precedents  for  the  industry. 
If  arbitration  is  going  to  supplement  our  judicial  system,  if  it 
is  going  to  aid  in  the  more  clear  formation  of  trade  usages  and 
business  practices,  it  must  tie  itself  in  some  way  to  the  great 
body  of  commercial  law  which  is  the  development  of  centuries. 
To  secure  the  greatest  benefit  from  arbitration,  therefore,  any 
system  adopted  by  an  association,  particularly  when  the  system 
is  a  compulsory  one,  should  require  the  consideration  of  the 
established  principles  of  law. 

Procedure. — The  procedure  followed  in  handling  arbitra- 
tion cases  by  the  various  associations  varies  from  the  utmost  in- 
formality to  careful  procedure  designed  to  make  the  plan  legally 
binding  in  every  respect.  Some  associations  endeavor  to  make 
their  procedure  as  informal  as  possible  as  they  have  found  that 
very  few  men  will  refuse  to  comply  with  an  award  when  ren- 
dered. Other  associations  have  drawn  their  arbitration  plans 
very  carefully,  with  printed  forms  covering  all  steps  of  the  pro- 
cedure. The  general  plan  of  procedure  should  be  shaped  at 
least  in  a  general  way  with  the  following  considerations  in 
view: 

Arbitrators. — The  general  rule  of  law  is  that  arbitrators 
must  be  appointed  by  or  with  the  consent  of  the  parties  to  the 
arbitration.  In  a  common  law  arbitration  the  parties  may 
provide  in  the  submission  (i.e.,  agreement  to  arbitrate)  for  the 
selection  of  the  arbitrators  in  any  manner  they  see  fit.  Under 
the  plan  of  the  Linseed  Association,  each  member  selects  one 
arbitrator,  who  select  a  third  to  act  as  referee  in  case  of  dis- 
agreement.20 The  International  Apple  Shippers'  Association 

20  Constitution,  Linseed  Assn.,  1918,  Art.  X. 


202  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

have  a  regular  standing  committee  for  handling  their  cases.21 
The  American  Association  of  Nurserymen  also  employed  this 
method.22  Other  associations  have  standing  committees 
throughout  the  country  appointed  from  different  districts,  or 
from  different  branches  of  the  industry  so  as  to  secure  expedi- 
tious action.  The  National  Wholesale  Grocers'  Association  has 
its  committee  appointed  by  districts.  The  Silk  Association  of 
America  has  a  standing  committee  on  arbitration  and  an  official 
list  of  arbitrators  selected  from  all  branches  of  the  industry, 
the  arbitrators  being  notified  of  their  selection  by  the  secretary 
so  that  they  will  not  know  by  which  party  they  were  selected.23 
The  Interstate  Cotton  Seed  Crashers'  Association  maintains 
standing  committees  of  five  members  in  a  number  of  cities.24 
The  National  League  of  Commission  Merchants  of  the  United 
States  have  local  arbitration  committees  in  their  branch  organi- 
zation with  a  right  of  appeal  to  the  National  Arbitration  Com- 
mittee.25 The  Grain  Dealers'  National  Associatioa  have  na- 
tional committees  of  three  members,  appointed  by  the  President 
and  confirmed  by  the  Board  of  Directors,  consisting  of  one  re- 
ceiver or  buyer  in  a  central  market,  one  representative  country 
shipper  and  one  grain  dealer,  not  exclusively  identified  with 
either  of  these  two  branches  of  the  grain  trade.  These  commit- 
tees act  as  appeal  boards  from  the  arbitration  committee  of  the 
local  associations.26  Arbitrators  under  the  system  of  the  Eub- 
ber  Association  of  America  are  appointed  by  the  committee  on 
arbitration  of  the  association,  subject  to  objection  by  the  parties 
within  two  days  after  receipt  of  notice  of  such  appointment. 
The  Secretary  of  the  American  Wholesale  Lumber  Association 
appoints  the  arbitrators  for  disputes  between  its  members,  but 
where  the  dispute  is  between  a  member  and  non-member  two 
arbitrators  are  chosen  from  that  association  and  two  others 
from  the  association  of  which  the  other  party  is  a  member,  and 

21  Letter,  R.  G.  Phillips,  Secretary,  Oct.  25,  1920. 

22  Official  Proceedings,  1918,  p.  99. 

23  Forty-sixth  Annual  Report  Silk  Assn.  of  America,  1916,  p.  32. 

24  Rules  governing  transaction  in  cottonseed,  etc.,   1919,  p.   58;   Pro- 
ceedings, Twentieth  Annual  Session,  p.  147  ff. 

25  Constitution  and  By-laws,  p.  18. 

26  Arbitration  Rules  Grain  Dealers'  National  Assn.,  1920,  Art.  II. 


COMMERCIAL  ARBITRATION  203 

these  arbitrators  in  turn  select  a  fifth  member  of  the  com- 
mittee. 

In  the  absence  of  statutory  prohibitions  any  person  may  be 
appointed  an  arbitrator  by  the  parties  to  the  arbitration,  re- 
gardless of  his  natural  or  legal  disabilities.28  Arbitrators,  how- 
ever, should  be  selected  with  care  for  awards  obtained  under 
certain  conditions  may  be  voided.  It  is  essential  that  the  ar- 
bitrators should  be  impartial.  They  occupy  a  quasi-judicial 
position  and  if  there  are  facts  establishing  bias  on  their  part, 
they  become  incompetent  to  make  a  good  award  if  such  facts 
were  not  known  to  the  party  affected  thereby.29  An  arbitrator 
is  not  the  agent  of  the  party  appointing  him,  but  rather  the 
representative  of  both  to  render  equal  and  impartial  justice.30 
He  should  not,  therefore,  be  interested  in  the  subject  matter 
to  such  a  degree  as  to  raise  a  reasonable  belief  that  his  interest 
would  influence  his  decision.31  Close  relationship  by  blood  or 
marriage  if  unknown  to  the  other  party,  is  likewise  objection- 
able.32 If  the  business  relationships  between  the  arbitrator  and 
one  of  the  parties  is  such  as  would  naturally  influence  the  judg- 
ment of  the  arbitrator,  such  relationship  may  also  disqualify 
him  from  acting.33  The  fact  that  an  arbitrator  has  prior  to  the 
arbitration  formed  and  expressed  his  opinion  upon  the  subject 
matter,  may  also  be  a  ground  for  invalidating  the  award.34  If, 
however,  a  party  having  a  knowledge  of  the  facts  which  would 
probably  influence  the  judgment  of  an  arbitrator  but  with  such 
knowledge  of  these  facts,  submits  his  case,  he  thereby  waives 
the  objection.36 

Submission. — There  must  be  an  agreement  in  some  form  to 
submit  the  dispute  to  arbitration  before  there  can  be  a  valid 

28  Evans  vs  Ives,  15  Philadelphia,  Penn.  635. 

29  Silver  vs  Connecticut  River  Lbr.  Co.,  40  Fed.  192,  194  j  Duvall  vs 
Sulzner,  155  Fed.  910,  918. 

so  Benjamin  vs  United  States,  29  Ct.  Cl.  417. 

31  Strong  vs  Strong,  12  Gush.  Mass.  135;  Monongahela  Navigation  Co. 
vs  Fenlon,  4  Watts  and  S.  205. 

32  Poole  vs  Hennesy,  39  Iowa  192,  18  Amer.  Rep.  44. 

MBradshaw  vs  Watertown  Agriculture  Co.,  16  N.  Y.  IS.  639,  137  N.  Y. 
137,  32  N.  E.  1055. 

34  Taber  vs  Jenny,  23  Fed.  Cases  13,  720,  1  Sprague  315. 

35  Duvall  vs  Sulsner,  155  Fed.  910,  918. 


204  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

award.36  At  common  law  a  verbal  agreement  of  submission  is 
probably  valid  when  a  verbal  agreement  between  the  parties 
in  the  terms  of  the  award  would  be  likewise  valid.37  Yet  it 
is  preferable  from  a  standpoint  of  a  clean  record  to  have  an 
agreement  in  writing.  It  is  an  essential  part  of  the  arbitration 
proceedings  limiting  and  controlling  the  award,  and  it  is  in 
every  way  preferable,  to  have  it  in  the  form  of  a  written  docu- 
ment, to  prevent  misunderstandings  and  disputes  over  what  was 
in  fact  submitted  for  arbitration.  The  American  Wholesale 
Lumber  Association  merely  secures  the  agreement  of  the  parties 
to  arbitrate  by  correspondence  with  each  of  them.  The  In- 
ternational Apple  Shippers'  Association  uses  no  form  of  agree- 
ment, but  requires  that  an  agreement  be  drawn  up  in  each 
case.38  The  Rubber  Association  of  America,  the  National 
Wholesale  Grocers'  Association,  the  Interstate  Cotton  Seed 
Crushers'  Association  and  the  Silk  Association  of  America,  all 
have  regular  printed  forms  of  submission  agreements.  Such  an 
agreement  should  be  acknowledged,  the  authority  of  the  agent, 
partners,  or  official  of  the  corporation,  as  the  case  may  be,  being 
clearly  shown.39  The  submittal  should  also  cover  any  and  all 
matters  which  are  to  be  arbitrated  so  clearly  and  specifically 
that  there  can  be  no  doubt  in  the  minds  of  the  arbitrators  as  to 
the  subject  matter  with  which  they  are  to  deal.  It  need  not  be 
described  in  a  technical  way,  such  as  prevails  in  law  pleadings, 
but  it  should  be  stated  clearly  and  unambiguously.40  It  should 
also  designate  the  parties  to  the  dispute,41  and  the  time  and 
place  of  hearing  unless  the-  selection  of  the  time  and  place  is 
left  to  the  arbitrators.42 

Hearing. — The  submission  having  been  executed  and  the  ar- 
bitrators named,  the  case  should  then  proceed  to  hearing.  It  is 

36  The  Glencaim,  78  Fed.  379,  383,  Cherokee  Nation  vs  United  States, 
40  Ct.  Cl.  252. 

37  Harrison^vs  Wright,  13  M.  &  W.  816. 

ss  Letter,  R.  S.  Phillips,  Secretary,  Oct.  25,  1920. 

39  Buchanan  vs  Curry,  19  Johns  N.  Y.  137,  10  Am.  Dec.  200,  30  Am. 
Dec.  627  note;  Marville  vs  American  Tract  Society,  123  (Mass.)  129,  25 
Am.  Rep.  40,  31  Am.  Dec.  630. 

*oCaldwell  vs  Dickinson,  13  Gray  (Mass.)   365. 

41  Wesson  vs  Newton,  10  Gush.   (Mass.)    114. 

42  Weir  vs  West,  27  Kan.  650. 


COMMERCIAL  ARBITRATION  205 

within  the  discretion  of  the  arbitrators  to  determine  their  mode 
of  conducting  the  proceedings,  except  of  course  with  the  limita- 
tion that  they  must  be  conducted  honestly  and  fairly.43  Each 
party  to  the  arbitration  is  entitled  to  a  hearing  before  the  arbi- 
trators.44 The  parties  may,  however,  waive  their  right  to  a 
hearing  by  express  agreement  or  in  the  submission.45  The  Silk 
Association  of  America  holds  regular  meetings  at  which  wit- 
nesses appear  and  give  testimony.46  Under  the  rules  of  the  com- 
mission merchants,  arguments  and  testimony  may  be  submitted 
either  in  writing  or  orally,  but  both  parties  must  follow  the 
same  method.47  The  Rubber  Association  of  America  also  hold 
hearings  at  which  the  parties  are  entitled  to  be  heard  either  in 
person  or  by  counsel.48  The  Apple  Shippers  have  no  oral  hear- 
ings, except  when  the  case  is  particularly  difficult  and  the  par- 
ties desire  it.49  The  rules  of  the  Cotton  Seed  Crushers  provide 
there  shall  be  no  personal  appearance,  except  at  the  request  of 
the  Chairman,  in  which  event  both  parties  are  entitled  to  ap- 
pear. In  the  event  one  party  submits  papers  while  the  other 
fails  to  do  so,  it  is  provided  that  the  hearing  may  be  ex  parte.50 
The  American  Wholesale  Lumber  Association  does  not  hold  oral 
hearings  unless  they  are  requested  by  the  committee. 

Arbitrators  are  not  bound  to  hear  the  argument  of  the  par- 
ties,51 or  to  allow  representation  by  counsel.52  It  constitutes 
misconduct  on  the  part  of  the  arbitrators,  however,  to  permit 

43  Carlston  vs  St.  Paul  P.  &  M.  Ins.  Co.,  37  Mont.  118,  94  Pac.  756. 

44  Lutz  vs  Linthicum,  8  Pet.  165;  Continental  Ins.  Co.  vs  G-arrett,  125 
Fed.  589,  592;  Warren  vs  Tinsley,  53  Fed.  689,  693. 

45  Canfield  vs  Watertown  Fire  Ins.  Co.,  55  Wis.  419;  Amos  vs  Buck, 
75  Iowa  651,  37  N.  W.  118. 

46  Rules  Arbitration  Silk  Assn.  of  America,  p.  5. 

47  Constitution   and   By-laws,   National   League   of    Commission    Mer- 
chants, p.  19. 

48  Rules  and  Regulations,  Rubber  Assn.  of  America,  approved,  June 
5,  1918. 

49  Letter,    R.    G.    Phillips,    Secretary,    International    Apple    Shippers' 
Assn.,  Oct.  25,  1920. 

BO  Rules  governing  transactions  in  cotton  seed,  etc.,  Interstate  Cotton 
Seed  Crushers'  Assn.,  1919,  p.  58. 

6i  Zell  vs  Johnston,  76  N.  C.  302. 

52  Stone  vs  Baldwin,  226  111.  338,  80  N.  E.  890. 


206  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

one  party  to  be  represented  by  counsel  and  to  refuse  the  other 
party  a  similar  opportunity.53  If  the  time  and  place  of  hearing 
are  not  fixed  by  submission,  the  arbitrators  should  appoint  such 
time  and  place,  giving  the  parties  a  reasonable  time  in  which  to 
secure  their  evidence  and  present  their  case.54  The  length  of 
time  they  will  wait  to  enable  the  parties  to  secure  evidence  is 
very  largely  within  the  discretion  of  the  arbitrators.55  Unless 
the  parties  have  waived  notice  or  agreed  to  dispense  with  it, 
failure  of  the  arbitrators  to  give  notice  of  the  hearing  will  in- 
validate the  award,  except  in  a  situation  where  the  arbitrators 
were  selected  as  experts  to  adjudge  the  dispute  from  their  own 
knowledge.56  It  is  of  course  improper  to  hear  one  party  and  his 
witnesses  without  notice  to  the  other  party.57  The  parties  have 
no  right  to  notice  of  or  to  be  present  at  the  meetings  of  the 
arbitrators  for  determining  their  decision  as  to  the  award  after 
the  evidence  has  been  presented.58  This  is  because  the  arbitra- 
tors should  be  able  to  deliberate  in  a  fair  and  unbiased  manner 
as  to  what  the  award  should  be.59  In  a  common  law  arbitration, 
it  is  not  necessary  to  swear  the  witnesses  unless  it  is  required  by 
the  provisions  of  the  submission.60 

The  arbitrators  are  not  bound  by  the  strict  rules  of  evidence 
and  the  fact  that  they  admit  incompetent  testimony  will  not  in- 
validate an  award.61  They  may  limit  the  number  of  witnesses 
to  be  examined,  provided  this  power  is  not  exercised  in  such 
a  way  as  to  prevent  an  impartial  hearing.62  They  should  not 
consult  with  or  hear  the  attorney  of  one  party  in  the  absence  of 

53  Matter  of  Picker,  130  App.  Div.  88,  114  N.  Y.  S.  289. 

54  Morewood  vs  Jeicett,  25  N.  Y.  S.  496. 

55  Ginder  vs  Curtis,   14  C.  B.  N.  S.  723,   108  E.  C.  L.   723,   143  Ke- 
print  628. 

56  Lutz  vs  Linthicum,  8  Pet.  165,  8  L.  ed.  904;  Continental  Ins.  Co.  vs 
Garrett,  125  Fed.  589,  592;  Warren  vs  Tinsley,  53  Fed.  689. 

57  Oswald  vs  Grey,  24,  L.  J.  Q.  B.  69. 

58  Ormsby  vs  Bakewell,  7  Ohio  98. 

59  Roleson  vs  Carson,  8  Md.  208,  222. 

QoNewcomb  vs  Wood,  97  U.  S.  581,  24  L.  ed.  1085;  Tobey  vs  Bristol 
County,  23  Fed.  Cases  14065. 

si  Maynard  vs  Frederick,  7  Gush.  247;  Velie  vs  Troy,  etc.,  R.  Co.,  21 
Barb.  381;  Burchell  vs  Marsh,  17  How.  (U.  S.)  344. 

62  Sizer  vs  Burt,  4  Den.  (N.  Y.)  426. 


COMMERCIAL  ARBITRATION  207 

the  other  party  or  his  attorney.63  Arbitrators  may  seek  the  ad- 
vice of  outside  parties  in  order  to  more  thoroughly  understand 
the  subject  matter  and  to  more  efficiently  perform  their  duty, 
although  they  should  exercise  their  own  individual  judgment 
and  not  accept  such  advice  as  conclusive,  unless  it  accords  with 
their  own  viewpoint.6*  They  may  also  employ  other  parties  to 
perform  ministerial  duties  in  conducting  the  arbitration  and 
may  thus  employ  clerks,  accountants  or  attorneys  to  draw  up 
the  award  and  so  on.65 

The  Award. — In  the  absence  of  statutory  provisions,  there 
is  no  particular  form  which  must  be  observed  in  making  the 
award.  It  should  be  a  complete  and  final  settlement  of  the 
matter  arbitrated.66  If  the  submission  agreement  contains  any 
special  requirements  as  to  the  action  of  the  arbitrators  in  mak- 
ing the  award,  these  must  be  strictly  complied  with  or  the  award 
will  be  of  no  effect.67  It  is  not  essential  that  the  award  be  in 
writing,  unless  so  required  by  the  submission  or  the  rules  of 
the  association.68  Unless  required  by  the  terms  of  the  submis- 
sion, or  by  statute,  the  award  need  not  contain  recitals  as  to  the 
subject  matter  submitted  or  that  the  arbitrators  were  duly  ap- 
pointed, or  the  parties  duly  heard,  because  such  matters  are  not 
proved  by  mere  recitals.69  It  is  not  necessary  for  the  arbitrators 
to  assign  reasons  for  their  award.70  It  may  be  undesirable  for 
them  to  do  so  because  such  statements  may  be  made  a  basis  for 
attempts  to  invalidate  the-  award  on  the  ground  of  mistake,  al- 
though a  mistake  to  invalidate  an  award  must  be  gross.71  They 
need  not  set  out  the  evidence  as  this  places  a  burdensome  task 

es  Hewitt  vs  Reed  City,  124^  Mich.  6,  82  N.  W.  616,  50  L.  R.  A.  128. 

MBurchell  vs  Marsh,  17  How.  344,  351;  Simons-  vs  Mills,  80  Cal. 
118,  22  Pac.  25. 

es  Choctaw  Nation  vs  United  States,  119  U.  S.  1,  97;  Steere  vs  Brown- 
ell,  115  111.  415. 

ee  Spear  vs  Hooper,  22  Pick.  (Mass.)  144. 

67  Allen  vs  Galpin,  9  Barb.  N.  Y.  246. 

68  Murdock   vs   Blusdell,    106    Mass.    370;    Osgood  vs  Poole,    165    111. 
A.  63;  Phelps  vs  Dolan,  75  111.  90;  McNulty  vs  Solley,  95  N.  Y.  242. 

69  Houghton  vs  Burroughs,  18  N.  H.  499,  502. 

™Patton  vs  Baird,  42  N.  C.  255,  260;  Becker  vs  Fowler,  Z  Watt. 
(U.  S.)  127. 

iiBurchell  vs  Marsh,  17  How.  344,  350. 


208  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

upon  the  arbitrators,  which  is  unreasonable  to  ask  of  a  business 
man.72  If  the  submission,  however,  requires  the  arbitrators  to 
make  separate  findings  of  fact  they  must  do  so,73  and  where  the 
character  of  the  matters  submitted  themselves  make  necessary 
separate  findings  they  should  be  made  in  the  award.74 

If  the  award  is  in  writing,  it  is  preferable  to  have  it  signed 
by  the  arbitrators.  If  a  majority  of  the  arbitrators  are  au- 
thorized to  make  an  award,  the  arbitrators  not  consenting  to  the 
award  need  not  sign  it.75  It.  is. not  within  the  power  of  an  arbi- 
trator to  authorize  another  to -sign  the  award  for  him  in  his  ab- 
sence.76 An  award  may  be  signed  by  the  arbitrators,  however, 
at  any  time  up  to  the  time*  fixed  by  statute  or  by  submission 
agreement  for  completion  of  the  award.77  In  the  absence  of 
such  provision,  the  authority  of  the  arbitrators  remains  in  effect 
until  revoked  by  the  parties.78 

The  award  must  not  go  beyond  the  subject  matter  of  the  sub- 
mission agreement.79  The  courts,  however,  are  liberal  in  con- 
struing the  terms  of  an  award  as  being  in  conformity  with  the 
submission  and  if  the  arbitrators,  after  reciting  the  terms  of 
their  authority  set  forth  in  the  agreement  of  submission,  recite 
that  they  make  the  award  "of  and  concerning  the  said  prem- 
ises, "  they  limit  the  award,  in  practical  effect,  to  the  scope  of 
the  submission.80  Where  the  submission  is  not  general,  that  is 
including,  for  example,  "all  matters  in  dispute  between  the 
parties,"  but  is  a  special  submission  limiting  the  arbitration  to 
particular  matters,  the  award  must  be  strictly  limited  to  such 
matters.81  If  the  arbitrators  go  beyond  the  terms  of  the  sub- 

72  Allen  vs  Smith,  4  Del.  234. 

73  Whitworth  vs  Hulse,  L.  R.  1  Exch.  251. 
74 Houston  vs  Pollard,  9  Mete.  (Mass.)  164. 

75  Security  Live  Stock  Ins.  Assn.  vs  Briggs,  22  111.  A  107. 
T«State  vs  Gurnee,  14  Kans.  111. 

77  Saunders  vs  Heaton,  12  Ind.  20. 

78  Wilkinson  vs  Pritchard,  145  la.  65,  123  N.  W.  964. 

79  Republic  of  Colombia,  vs    Cauca   Co.,    190   U.    S.    524;    McCormick 
vs  Gray,  13  How.  26;  Rucker  vs  Page,  69  111.  179. 

&o  Harrison  vs  Lay,  13  C.  B.  N.  S.  528,  106  E.  C.  L.  528,  143  Re- 
print 209. 

si  Tucker  vs  Page,  69  111.  179  j  Masury  vs  Whiton,  2  Silv.  A  (N.  Y.) 
123,  18  N.  E.  638. 


COMMERCIAL  ARBITRATION  200 

mission  and  it  is  possible  to  divide  the  award,  it  will  be  sus- 
tained as  to  the  matters  which  were  within  the  submission.82 
Thus  it  is  probably  advisable  in  making  an  award  of  a  gross  sum 
to  itemize  the  items  making  up  such  sum  so  that  it  may  be  di- 
visible in  the  event  some  items  are  not  covered  by  the  submittal 
agreement. 

Where  the  arbitration  involves  the  fixing  of  amounts  of 
money  due,  the  arbitrators  may  give  a  reasonable  time  for  pay- 
ment and  they  may  also  direct  the  payment  of  interest  on  the 
amount  awarded  until  payment  is  made.83 

As  one  purpose  underlying  arbitration  is  prompt  settle- 
ment, an  award  cannot  be  good  unless  it  is  final  in  its  terms.84 
In  other  words,  it  must  so  dispose  of  the  subject  matter  in 
dispute  that  nothing  remains  to  fix  definitely  the  rights  and 
obligations  of  the  parties.  It  may,  however,  be  conditional,  i.e., 
require  one  party  to  perform  certain  conditions  before  being 
entitled  to  the  benefit  of  the  award,85  or  it  may  be  alternative  to 
the  extent  of  giving  to  a  party  an  option  of  discharging  of  his 
liability  in  one  of  two  ways.86 

The  award  should  be  stated  in  such  clear  language  that  there 
should  be  no  doubt  as  to  what  each  party  is  required  to  do 
under  it.  If  this  were  not  so,  awards  would  merely  become 
grounds  for  new  controversies.87  Where  the  arbitrators  are 
supposed  to  ascertain  a  definite  sum  but  fail  to  fix  such  amount, 
leaving  that  part  of  the  controversy  uncertain  and  failing  also 
to  furnish  data  in  their  award  from  which  the  amount  can  be 
computed,  the  award  is  void.88  The  arbitrators  must  also  decide 
all  the  items  covered  by  the  submission  which  are  not  withdrawn 
from  their  consideration  by  consent  of  the  parties;  and  if  they 
fail  to  do  so,  they  invalidate  the  award.  To  sustain  an  award 
only  partly  good,  would  be  in  effect  making  and  enforcing  a 

*2  Warner  vs  Collins,  135  Mass.  26;  Doke  vs  James,  4  N.  Y.  568. 
wNoyes  vs  McLaflin,  62  111.  474. 

**Boyd  vs  Bargagloitti,  12  Cal.  A  228,  107  Pac.  150. 
ss  Brown  vs  Evans,  6  Allen   (Mass.)   333. 
ss  Thornton  vs  Carson,  7  Cranch.  596,  3  L.  ed.  451. 

87  Lutz  vs  Linthicum,  8  Pet.  165,  8  L.  ed.  904;  Kingston  vs  Kingston, 
14  Fed.  Cases  7821. 

ss  Alexander  vs  McNear,  28  Fed.  403,  405. 


210  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

contract  the  parties  did  not  make.  When  they  agreed  to  arbi- 
tration, it  was  to  secure  a  complete  and  final  settlement.89 

The  awards  of  the  Silk  Association  of  America  and  the 
Rubber  Association  of  America  are  very  carefully  drawn  up  in 
written  form  so  as  to  comply  with  these  requirements. 

Appeal. — Some  associations  provide  in  their  rules  for  ap- 
peal from  the  decision  of  the  first  arbitration  committee.  The 
American  Wholesale  Lumber  Association  allows  appeals  only 
when  the  decision  of  the  original  committee  is  not  unanimous, 
the  case  then  going  to  the  general  arbitration  committee  of  the 
association  for  final  decision.  The  Eubber  Association  of  Amer- 
ica allows  appeals  within  five  days  from  receipt  of  the  notice  of 
award,  upon  payment  of  $100,  the  case  going  to  the  general 
arbitration  committee  of  the  association.90  The  grain  dealers 
allow  appeal  to  what  is  known  as  the  appeals  committee,  con- 
sisting of  five  members  of  the  Board  of  Directors,  appointed  by 
the  President.  The  American  Cotton  Waste  Exchange  has  a 
standing  arbitration  committee  for  appeals,  the  Chairman  of 
which  sits  on  each  case.  The  Chairman  of  the  original  commit- 
tee also  participates  in  the  hearing  on  appeal,  which  must  be 
made  within  three  days  after  the  receipt  of  the  original  decision, 
and  must  be  accompanied  by  a  check  for  $200.91  Under  the 
rules  of  the  cotton  seed  crushers,  appeals  may  be  made  within 
ten  days  if  the  award  is  over  $300,  providing  the  full  amount  of 
the  award,  plus  the  amount  of  $250  to  cover  the  expenses  of 
appeal  and  the  traveling  expenses  of  the  committee  are  de- 
posited.92 If  the  award  is  not  a  money  award,  the  President  de- 
termines the  sum  to  be  deposited. 

The  associations  which  have  the  most  successful  arbitration 
systems  usually  have  very  carefully  drawn  rules  and  regulations 
standardizing  the  methods  of  handling  arbitration  cases.  This 

89  Carnochan  vs  Christie,   11  Wheat  446,  6  L.  ed.  516;   Palatine  Ins. 
Co.  Ltd.  vs  O'Brien,   152  Fed.  922;   Continental  Ins.   Co.  vs   Garrett,   125 
Fed.  589,  591. 

90  Rules  and  Regulations,  Rubber  Assn.  of  America,  approved  June  5, 
1918. 

si  Textile  World,  March  5,  1921,  p.  97. 

92  Rules  governing  transactions  in  Cotton  Seed,  etc.,  Interstate  Cotton 
Seed  Crushers'  Assn.,  1919,  p.  60. 


COMMERCIAL  ARBITRATION  211 

is  highly  desirable  as  it  prevents  endless  complications.  The 
Silk  Association  of  America,  the  Rubber  Association  of  America, 
and  the  Grain  Dealers'  National  Association,  all  have  printed 
rules  and  regulations.  The  American  Wholesale  Lumber  Asso- 
ciation also  has  adopted  regular  rules.  The  Chamber  of  Com- 
merce of  the  State  of  New  York  also  issues  a  handbook  of  in- 
structions to  its  arbitrators,  advising  them  fully  as  to  their 
duties  as  well  as  the  procedure  to  be  followed.93 

Enforcement. — If  the  arbitration  system  of  the  association 
is  framed  along  the  lines  required  by  law,  the  party  winning  an 
arbitration  proceeding  can  successfully  maintain  action  thereon 
in  the  courts.  It  is  rare,  however,  that  any  such  action  is  neces- 
sary as  few  business  men  would  advertise  themselves  to  the 
members  of  their  association  as  refusing  to  abide  by  a  decision 
of  their  fellow  business  men.  The  National  League  of  Commis- 
sion Merchants  of  the  United  States,  the  Interstate  Cotton  Seed 
Crushers'  Association,  the  International  Apple  Shippers'  Asso- 
ciation, the  American  "Wholesale  Lumber  Association  and  the 
Grain  Dealers'  National  Association,  all  provide  that  any  mem- 
ber refusing  to  abide  by  an  arbitration  decision  shall  be  expelled 
from  the  association.94 

Legality. — There  can  be  no  question  as  to  the  legal  pro- 
propriety  of  arbitration  as  such.  Of  course  such  matters  as  are 
tabooed  by  the  anti-trust  acts  cannot  lawfully  be  arbitrated  for 
the  law  will  not  permit  its  purpose  to  be  defeated  by  any  sub- 
terfuge. Therefore,  no  questions  such  as  the  ethics  of  direct 
selling,  price  cutting,  encroachments  on  competitors'  territory, 
or  any  dispute,  an  adjudication  of  which  if  followed  in  the  trade 
would  restrict  competition  should  be  submitted  to  arbitration. 

»3  Commercial  Arbitration,  pamphlet  issued  by  Committee  on  Arbitra- 
tion, Chamber  of  Commerce  of  the  State  of  New  York,  p.  47. 

94  Constitution  and  By-laws,  National  League  of  Commission  Mer- 
chants of  United  States,  p.  18;  Rules  governing  transactions  in  Cotton 
Seed,  etc.,  Interstate  Cotton  Seed  Crushers'  Assn.,  1919,  p.  62;  Letter, 
R.  G.  Phillips,  Secretary,  International  Apple  Shippers'  Assn.,  Oct.  25, 
1920;  Plan  of  Arbitration  of  American  Wholesale  Lumber  Assn.,  adopted 
June  30,  1920,  paragraph  8;  Arbitration  Rules,  Grain  Dealers'  National 
Assn.,  1920,  Article  VI,  Section  17. 


CHAPTER  XIII 
SPEEDING  UP  DISTRIBUTION 

THERE  is  a  nationwide  demand  for  an  improvement  in  our 
methods  of  distribution.  During  the  past  half  century,  the  cost 
of  distributing  commodities  has  greatly  increased  while  the  cost 
of  production  has  decreased.  A  considerable  portion  of  this 
increased  cost  is  due  to  the  higher  standards  of  living  of  our 
people  and  their  demand  for  special  services,  and  uniform 
quality  which  cannot  be  supplied  except  at  added  expense.  Part 
of  this  criticism  is  also  due  to  anfamazing  lack  of  knowledge 
of  the  functions  which  distributors,  particularly  the  whole- 
salers, perform.  But  few  business  men,  whether  they  be 
manufacturers  or  distributors,  will  deny  that  there  is  room 
for  improvement  in  the  distribution  of  goods  to  the  ultimate 
consumer.  While  efficiency  in  distribution  must  in  the  last 
analysis  result  from  the  individual  efforts  of  distributors  to  im- 
prove their  methods,  yet  in  many  ways  organized  effort  through 
trade  associations  can  accomplish  substantial  benefits  where  the 
individual  would  be  wholly  unable  to  attain  results.  The  im- 
portance of  cooperative  advertising,  of  standardization,  of 
united  effort  in  transportation  matters,  of  joint  agencies  for 
protection  against  bad  debtors,  of  the  elimination  of  unfair  prac- 
tices, and  of  commercial  arbitration  in  enlarging  distribution 
and  reducing  its  costs,  its  irritations,  and  its  wastes  has  already 
been  discussed  in  preceding  chapters.  In  other  ways  the  trade 
association  of  an  industry  can  aid  in  speeding  up  the  movement 
of  goods  to  the  consumer. 

Uniform  Trading  Rules. — In  the  older  industries,  trading 
is  largely  conducted  under  customs  which  have  been  developed 
and  fixed  as  a  result  of  centuries  of  usage.  In  many  of  our 
younger  industries,  there  has  not  been  time  for  trade  customs 
to  develop.  As  a  result  there  is  the  utmost  confusion  in  the 
transaction  of  business.  Trade  terms  have  varying  meanings. 
There  is  no  procedure  to  be  followed  in  buying  or  selling.  In- 

212 


SPEEDING  UP  DISTRIBUTION  213 

evitably  endless  disputes  and  constant  litigation  results.  The 
door  is  opened  wide  to  sharp  practices  and  dishonesty.  The 
processes  of  distribution  are  made  more  complicated  and 
the  quick  movement  of  commodities  retarded.  The  various  ex- 
changes of  our  great  cities  long  ago  formulated  rules  which  in 
no  way  impinge  upon  the  public  interests.  There  is  a  great  op- 
portunity in  many  industries  for  the  formulation  of  similar 
rules  in  a  national  way.  Some  associations  have  carefully  done 
this.  The  grain  dealers  for  seventeen  years  have  been  operating 
under  uniform  trade  rules.1  These  rules  define  the  meaning  of 
the  customary  trade  terms,  and  establish  the  practice  with  ref- 
erence to  confirmation,  time  of  shipment  and  delivery,  billing  in- 
structions, incomplete  shipments  or  deliveries,  demurrage,  sam- 
pling, loading  minimums,  acceptances,  methods  of  handling  bills 
of  lading,  overdrafts,  weights,  inspection,  routing,  arbitration 
and  so  on.  The  cotton  seed  crushers  have  also  adopted  very 
complete  rules  to  apply  in  all  transactions,  in  the  absence  of  any 
special  contract  to  the  contrary.2  The  Rubber  Association  of 
America  has  adopted  similar  rules.3  The  American  Lumber 
Congress,  an  organization  composed  of  representatives  of  the 
manufacturing,  wholesaling  and  retailing  branches  of  the  in- 
dustry several  years  ago  adopted  limited  trading  rules  which  are 
receiving  a  widening  application.  Rules  of  this  character  gen- 
erally used  in  an  industry  greatly  simplify  trading  and  make 
for  a  quicker  distribution  of  its  products.  Trade  rules,  however, 
should  not  be  drawn  without  advice  of  counsel.  If  they  are  em- 
ployed to  unreasonably  restrict  competition  they  are  unlawful. 
But  reasonable  rules  designed  to  expedite  business  are  lawful.4 
Uniform  Contracts. — The  laxity  of  the  methods  used  in 
some  industries  in  making  purchases  and  sales  is  amazing.  Only 
the  honesty  of  the  overwhelming  percentage  of  business  men 
makes  business  possible  under  such  conditions.  But  the  failure 

1  Trade  Rules  of  the  Grain  Dealers'  National  Assn. 

2  Rules  Governing  Transactions  in   Cotton   Seed  and  its  Products  as 
adopted  by  Interstate   Cotton   Seed  Crushers'  Assn.,   Thirty-third  Annual 
Session,  1919. 

s  Rules  and  Regulations  to  Govern  Transactions  between  Buyers  and 
Sellers  of  Crude  Rubber  in  the  United  States  and  Canada,  1917. 

4 Board  of  Trade  of  Chicago  vs  United  States,  246  U.  S.  231   (1917). 


214  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

to  incorporate  clearly  the  complete  terms  of  the  supposed  con- 
tract in  the  correspondence  between  the  parties  in  innumerable 
cases  results  in  disputes  and  lawsuits.  There  are  endless  op- 
portunities for  trouble  when  there  is  no  clear  written  under- 
standing as  to  such  matters  as  liability  for  loss,  or  increased 
freight  charges,  or  damage  in  transit  or  shrinkage,  or  such  mat- 
ters as  routings,  time  for  notification  of  claims  or  rejections, 
methods  of  inspection,  arbitration,  place  of  delivery,  insurance, 
pure  food  guarantees,  contingencies,  right  of  cancellation  and 
what  not.  When  every  buyer  adopts  his  own  order  form,  with 
many  conditions  printed  on  its  back,  and  every  seller  adopts  an 
individual  form  of  acceptance  containing  numerous  conditions, 
the  situation  is  nearly  as  bad  as  though  there  were  no  contracts 
used.  Many  disputes  will  arise  because  of  honest  misunder- 
standings. And  of  course  the  door  is  left  wide  open  for  the 
dishonest  trader  who  thrives  on  technicalities. 

An  examination  of  many  transactions  will  disclose  that  a 
large  percentage  of  what  business  men  think  are  contracts  are 
not  completed  contracts  but  merely  incomplete  negotiations. 
Associations,  therefore,  have  directed  considerable  attention  to 
the  formulation  of  ideal  contracts  under  which  their  members 
can  do  business.5  There  are  substantial  benefits  to  be  derived 
from  such  action.  If  there  is  a  standard  form  of  contract  in  use, 
court  decisions  will  in  the  course  of  time  clarify  each  clause  and 
its  interrelation  with  the  entire  contract  so  that  business  men 
can  utilize  such  a  contract  with  absolute  safety.  The  use  of 
such  contracts  will  also  prevent  needless  lawsuits  and  disputes 
detrimental  to  the  maintenance  of  cordial  relations  between  all 
factors  in  the  industry.6  Everybody  engaged  in  business  has 

5  Among  the  associations  which  have  adopted  uniform  contracts  are 
the  Assn.  of  American  Wood  Pulp  Importers,  American  Spice  Trade  Assn., 
National   Commercial   Fixtures   Manufacturers'   Assn.,   National   Assn.    of 
Granite   Industries,  National  Wholesale  Grocers'   Assn.,  American   Boiler 
Manufacturers'  Assn.,  Knit  Goods  Manufacturers'  Assn.,  National  Whole- 
sale Dry  Goods  Assn.,  the  Linseed  Assn.,  and  a  number  of  associations  in 
the  lumber  industry. 

6  Report  of   R.   C.   Marshall,   Jr.,   General   Manager,   Associated    Con- 
tractors of  America,  The  Bulletin,  of  the  Associated  General  Contractors, 
February,  1921,  p.  4. 


SPEEDING  UP  DISTRIBUTION  215 

much  to  gain  from  the  general  adoption  of  sound,  businesslike 
principles  in  the  making  of  contracts.  Indeed,  the  committee 
of  one  association  which  started  this  work  with  doubt  as  to  its 
value  at  the  end  of  two  years'  serious  work  is  firmly  convinced 
that  the  ultimate  welfare  of  the  industry  depends  upon  the  de- 
velopment of  such  a  code  of  contractual  relations  worked  out  by 
all  elements  in  the  industry.7 

/  There  is  a  fair  and  an  unfair  method  to  follow  in  the  adop- 
tion of  uniform  contracts.  Some  associations  which  are  strong 
enough  to  dominate  their  industries  may  endeavor  to  force  an 
unfair  contract  of  their  drafting  upon  the  industry.  Such  ac- 
tion, of  course,  merely  increases  ill  feeling  and  provokes  troubled 
The  same  principles  which  apply  to  the  working  out  of  a  stand- 
ardization program  apply  to  the  framing  of  a  uniform  contract 
for  an  industry.  All  parties  who  are  affected  by  such  contract 
should  be  given  an  opportunity  to  be  heard  and  the  contract 
adopted  should  be  the  expression  of  the  united  judgment  of  the 
industry.  With  the  friendly  support  of  buyers  and  sellers  a 
uniform  contract  will  be  more  quickly  and  generally  adopted  in 
the  industry.  The  wholesale  grocers  have  adopted  a  number 
of  uniform  contracts  evolved  in  conferences  with  the  represen- 
tatives of  associations  from  whose  members  the  wholesalers  pur- 
chase their  supplies.8  The  Knit  Goods  Manufacturers  of  Amer- 
ica and  the  National  Wholesale  Dry  Goods  Association  have 
formulated  a  uniform  contract  to  govern  transactions  between 
their  members.9  In  the  lumber  industry,  the  manufacturers, 
wholesalers,  and  retailers  working  through  their  associations 
have  in  joint  conference  drawn  up  a  form  of  contract  which  is 
meeting  with  general  approval.10  The  National  Lumber  Manu- 
facturers' Association,  the  American  Wholesale  Lumber  Asso- 
ciation, the  National  Wholesale  Lumber  Dealers'  Association, 

t  Report  of  J.  W.  Cowper,  Chairman,  Committee  on  Contracts,  Asso- 
ciated General  Contractors  of  America,  The  Contractor,  January,  1922, 
p.  18. 

s  Special  Bulletin,  National  Wholesale  Grocers'  Assn.,  Feb.  16,  1917. 
This  bulletin  contains  a  number  of  contract  forms. 

»  Textile  World,  March  12,  1921. 

10  "The  Universal  or  Uniform  Order  Blank,"  Chas.  B.  Carothers, 
Southern  Lumberman,  Dec.  17,  1921,  p.  136. 


216  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  National  Retail  Lumber  Dealers'  Associations  and  a  num- 
ber of  regional  and  state  associations  have  recommended  the 
general  adoption  of  this  form  in  the  industry. 

In  the  construction  industries,  there  has  for  years  been  the 
utmost  confusion  arising  from  the  use  of  a  multitude  of  contract 
forms  by  the  government,  different  trade  associations,  and  many 
individual  concerns.  To  remedy  the  situation,  Secretary  Hoover 
of  the  Department  of  Commerce  called  a  conference  of  the  rep- 
resentatives of  seven  great  associations  in  the  industry  to  con- 
sider the  possibility  of  developing  a  system  of  coordinated  con- 
tracts protecting  the  interests  of  all  elements  in  the  industry.11 
Cooperation  between  the  various  factions  of  the  industry,  com- 
bined with  government  support,  is  the  ideal  method  to  follow 
in  order  to  bring  about  uniformity  of  contract  methods  in  an 
industry.  It  assures  the  representation,  and  support  of  buyers, 
sellers  and  all  other  elements  of  the  industry.  The  participa- 
tion of  a  government  department  should  assure  protection  of  the 
public  interest.  It  need  scarcely  be  said  however  that  uniform 
contracts  cannot  lawfully  be  employed  to  fix  prices,  or  terms  or 
to  exercise  any  undue  control  over  competition  in  quality  or 
service.  And  no  attempt  should  be  made  to  coerce  any  party 
Into  using  such  a  contract  against  his  will.  If  the  contract  is 
fairly  drawn  the  benefits  resulting  from  its  use  will  cause  its 
general  adoption. 

Salesmanship. — Associations  can  sometimes  improve  the 
sales  ability  of  their  representatives  more  economically  through 
united  action.  The  fertilizer  manufacturers  after  starting  a  gen- 
eral advertising  campaign  to  reach  the  farmer,  discovered  that 
their  own  sales  forces  knew  little  about  the  product  they  were 
selling  and  even  less  about  the  proper  grades  to  be  recommended 
for  different  crops  under  varying  conditions.  The  association 
therefore  held  conferences  of  salesmen  throughout  the  country. 

11  The  Constructor,  January,  1922,  p.  18.  The  following  associations 
were  represented  at  this  conference:  American  Assn.  of  State  Highway 
Officials,  American  Engineering  Council,  American  Institute  of  Architects, 
American  Railway  Engineering  Assn.,  American  Society  of  Civil  Engineers, 
National  Assn.  of  Builders'  Exchanges,  American  Waterworks  Assn., 
Associated  General  Contractors  of  America  and  the  Western  Society  of 
Engineers. 


SPEEDING  UP  DISTRIBUTION  217 

Specialists  on  soils,  crops,  fertilizers  and  salesmanship  were  em- 
ployed to  address  these  conferences  and  a  conference  of  the  sales 
managers  was  held  at  Cornell  University,  some  ninety  managers 
and  officials  participating.12  The  Southern  Pine  Association  has 
maintained  a  School  of  Salesmanship  for  the  benefit  of  the  sales- 
men employed  by  its  members.13  It  was  felt  that  the  salesmen  of 
the  industry  were  lacking  in  knowledge  of  the  principles  of  sales- 
manship, of  the  uses  and  possibilities  of  wood,  of  the  merits  and 
limitations  of  substitutes,  and  of  the  methods  of  manufacture.  A 
course  of  study  was  therefore  planned  dealing  with  (1)  the  fun- 
damentals of  salesmanship,  (2)  manufacturing  conditions,  meth- 
ods, and  costs,  (3)  trade  extension  possibilities,  (4)  the  merits 
and  uses  of  wood,  and  (5)  the  study  of  wood  substitutes.  District 
meetings  wrere  held  and  everything  possible  was  done  to  sustain 
the  interest  of  the  salesmen  in  their  product  and  in  their  indus- 
try. This  work  has  been  continued  for  several  years.  Such 
activities  by  producing  better  salesmen  and  better  selling  methods 
ought  certainly  to  tend  toward  enlarged  sales  and  lowered  costs 
of  distribution.  An  activity  of  this  kind  can,  however,  be  easily 
misused.  If  its  purpose  is  not  a  legitimate,  educational  purpose 
but  rather  to  control  price  competition  and  enhance  price,  it  of 
course  becomes  unlawful. 

Overstock  Exchanges. — A  distributor,  through  mis  judg- 
ment of  market  conditions,  may  find  himself  overstocked  on  cer- 
tain items.  If  he  continues  to  hold  the  goods,  his  capital  is  need- 
lessly tied  up  and  his  costs  of  doing  business  increased.  Various 
associations  use  their  organization  as  the  medium  through  which 
members  can  advertise  such  stock  for  sale  to  other  members  who 
may  be  short  on  such  items.  The  National  Hardware  Association 
has  done  this  for  some  years  with  the  result  that  goods  unsalable 
in  some  localities  have  found  a  ready  market  in  other  communi- 
ties where  there  was  a  demand  for  them.14  The  National  Gar- 
ment Manufacturers'  Association  also  maintains  an  exchange 
bureau  which  acts  as  a  clearing  house  for  its  members  by  issuing 

120.  M.  Kile,  Printers'  Ink,  p.  105.  See  also,  Proceedings,  National 
Fertilizer  Assn.,  Twenty-fifth  Annual  Meeting,  1918,  p.  21. 

is  Proceedings,  First  Annual  Meeting,  1916,  p.  178;  Proceedings,  Sec- 
ond Annual  Meeting,  1917,  p.  10. 

i*  Proceedings,  Twenty-third  Annual  Convention,  p.  273. 


218  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

weekly  bulletins  of  goods  its  members  may  have  for  disposition.15 
A  nominal  brokerage  fee  is  charged  for  the  service,  which  is  fur- 
nished both  to  members  and  non-members.  The  Associated  Dress 
Industries  operating  a  similar  exchange  has  disposed  of  over 
eighty  thousand  dollars  '  worth  of  goods  by  one  bulletin  and  the 
United  Waist  League  has  disposed  of  over  one  million  dollars' 
worth  of  raw  materials  within  a  year,16  The  National  Paper 
Box  Manufacturers'  Association  also  maintain  a  merchandise  and 
machinery  exchange  to  assist  the  members  in  disposing  of  surplus 
commodities  or  machinery.17 

Educational  Work.  —  The  business  methods  of  many  re- 
tailers could  be  improved.  Some  associations,  acting  on  the 
theory  that  an  improvement  in  retail  distribution  will  react  to 
the  general  benefit  of  the  entire  industry,  are  spending  large 
sums  of  money  in  educational  work.  The  Institute  of  American 
Meat  Packers  has  worked  out  a  general  plan  of  cooperation  with 
retail  organizations.18  It  is  making  a  careful  study  of  retail  man- 
agement, accounting,  and  delivery  systems.  It  also  plans  to  issue 
bulletins  covering  such  matters  as  the  proper  handling  of  packing 
house  products  from  the  standpoint  of  conservation.  The  whole- 
sale grocers  maintain  a  special  committee  on  cooperation  with  the 
retail  grocers.19  This  committee  has  made  special  studies  of  re- 
tail service  problems,  costs  and  similar  matters.  Through  the 
trade  press,  pamphlets,  addresses  before  conventions  and  so  on 
every  effort  has  been  made  in  cooperation  with  the  National  Asso- 
ciation of  Retail  Grocers  to  better  business  methods  in  the  retail 
branch  of  the  industry.  Several  million  copies  of  pamphlets  deal- 
ing with  such  matters  as  cost  accounting  systems,  delivery  service, 
stock  and  window  display,  credit  extension,  cleanliness,  insur- 
ance, discounting  of  bills  and  so  on  have  been  distributed  among 
the  retailers.  The  National  Lumber  Manufacturers'  Association 

is  "Some  Queer  Trade  Problems  Manufacturers  Are  Up  riddling  through 
Cooperation,"  C.  A.  Rohrbach  and  John  Allen  Murphy,  Printers'  Ink, 
Sept.  23,  1920. 


17  National  Trade  Associations,  A  study  by  National  Assn.  of  Manu- 
facturers, 1922,  p.  195. 

is  Printers'  Ink,  Nov.  4,  1920,  p.  146. 

is  Proceedings,  Eleventh  Annual  Meeting,  National  Assn.  of  Whole- 
sale Grocers,  1917,  pp.  133,  144. 


SPEEDING  UP  DISTRIBUTION  219 

for  some  years  has  actively  aided  the  retail  lumber  dealer  in  the 
broader  problems  of  retail  distribution.  Dealers  have  been  fully 
informed  as  to  the  characteristics  and  proper  uses  of  the  several 
varieties  of  wood,  effective  service  methods,  opportunities  for 
sales  in  special  fields,  methods  of  meeting  mail  order  competi- 
tion and  given  the  effective  assistance  of  national  advertising 
campaigns.  Paid  representatives  of  the  association  have  trav- 
eled among  the  retailers  aiding  them  in  installing  service  de- 
partments and  more  sound  methods  of  merchandising  to  in- 
crease their  ability  to  compete  with  dealers  in  competitive  prod- 
ucts.20 The  Knit  Goods  Manufacturers  of  America  publish  a 
special  trade  paper  containing  educational  matter  intended  to 
help  the  retailer.21  There  is  a  growing  number  of  associations 
which  are  closely  cooperating  with  their  distributors  aiding 
them  in  every  way  possible  to  improve  their  business  methods. 

Educational  work  among  other  factors  in  the  trade  may 
also  make  selling  easier.  The  Southern  Pine  Association  has 
published  a  series  of  engineering  bulletins  designed  to  furnish 
to  architects  and  engineers  complete  technical  information  and 
reference  data  on  practically  all  phases  of  the  use  of  wood  as 
a  construction  material.  These  bulletins  cover  such  subjects  as 
the  use  of  timber  for  structural  purposes,  physical  properties, 
preservative  treatments,  fire  retardants  and  so  on.22  The  ce- 
ment association,  the  brick  associations  and  various  other  asso- 
ciations have  conducted  extensive  campaigns  of  this  character. 

The  education  of  the  consumer  and  user  as  to  the  merits  and 
uses  of  a  product  may  be  of  value  in  reducing  sales  resistance 
and  lowering  distribution  costs.  The  value  of  cooperative  ad- 
vertising in  enlarging  demand  and  reducing  selling  costs  has 
already  been  discussed  in  a  previous  chapter.  It  is  probably  the 
greatest  single  agency  making  for  expeditious  distribution. 
Many  associations  have  developed  great  educational  campaigns 
in  connection  with  their  advertising  programs.  The  National 
Fertilizer  Association  has  carried  on  an  intensive  program 
among  the  farmers  utilizing  the  forces  of  the  U.  S.  Department 

20  R.  S.  Kellogg,  Secy.,  Proceedings,  Second  Annual  Meeting,  Southern 
Pine  Assn.,  p.  61. 

21  Printers'  Ink,  April  8,  1920,  p.  133. 

22  Proceedings,  First  Annual  Meeting,  p.  80. 


220  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

of  Agriculture,  the  state  agricultural  colleges,  county  agricul- 
tural agents,  and  the  farm  papers  for  this  purpose.23  The  co- 
operation of  seed  houses,  canners,  and  farm  machinery  com- 
panies has  also  been  secured.  The  National  Association  of 
Lumber  Manufacturers  has  for  years  carried  on  an  educational 
campaign  which  has  had  the  widest  ramifications.  Newspapers, 
moving  pictures,  educational  work  at  colleges  and  trade  schools, 
traveling  exhibits  at  fairs  and  conventions,  lectures  before  clubs 
and  other  public  organizations  have  all  been  utilized  to  convince 
the  consumer  as  to  the  merits  of  lumber.24  The  wholesale  groc- 
ers have  even  had  a  book  written  on  the  geography  of  foods,  for 
possible  use  in  the  schools  as  a  reference  work.  The  National 
Dairy  Council,  the  Portland  Cement  Association  and  a  number 
of  other  associations  have  used  every  possible  agency  to  convince 
the  consumer  of  the  merits  of  their  products  and  thus  make 
selling  easier  for  their  distributors. 

The  beneficial  results  of  these  several  activities  cannot  be 
gainsaid.  Industry  and  public  both  benefit.  With  increased 
transportation  rates  and  other  factors  enlarging  costs  of  dis- 
tribution any  activity  which  will  tend  to  reduce  such  costs  is  a 
public  benefit.  An  association  which  simplifies  and  clarifies  the 
basis  on  which  business  transactions  of  the  industry  are  con- 
ducted through  the  adoption  of  simple  rules  and  fair  contract 
forms  is  forwarding  not  only  its  own  interests  but  those  of  the 
nation  as  well.  An  association  which  reduces  the  friction  and 
drag  on  distribution  through  the  education  of  the  salesmen  of 
the  industry,  of  distributors,  and  of  the  general  public -speeds 
up  the  transaction  of  business,  increases  productivity  and  bet- 
ters conditions  generally.  Such  activities  when  they  are  not 
misused  for  ulterior  purposes  deserve  the  support  and  approval 
of  the  general  public. 

23  Proceedings,  Annual  Meeting,  1918,  p.  21  if. 

24  E.  A.  Sterling,  Mgr.,  Trade  Extension  Bureau,  First  Annual  Meet- 
ing, Southern  Pine  Assn.,  p.  75  ff . 


CHAPTER  XIV 
FOREIGN  TRADE 

RECENT  years  have  seen  an  increasing  emphasis  placed  upon 
the  value  of  foreign  trade  as  a  factor  in  maintaining  prosperity. 
First  an  agricultural  nation,  we  have  developed  into  a  great 
manufacturing  nation  and  have  now  definitely  become  an  ex- 
porting nation.  Our  greatly  enlarged  productive  capacity,  our 
enormous  holdings  of  gold,  our  great  merchant  marine,  our  rap- 
idly developing  banking  facilities  abroad,  make  the  maintenance 
and  development  of  foreign  trade  of  the  first  moment.  Our 
largest,  highly  integrated  corporations,  can  maintain  their  posi- 
tion in  foreign  trade  through,  individual  organization.  But  the 
great  bulk  of  American  manufacturers  cannot  hope  to  meet 
singly  the  competition  of  the  great  government  fostered  cartels 
of  Germany,  the  comptoirs  of  France  and  the  closely  organized 
trade  combines  of  England.  The  single  manufacturer  finds  the 
varying  customs,  laws,  transportation  conditions  and  so  on  in 
the  many  countries  an  almost  insurmountable  obstacle  to  the 
successful  development  of  permanent  business.  The  smaller 
manufacturers  must  possess  some  sort  of  an  organization  to  aid 
them  and  they  must  depend  upon  a  reasonable  measure  of  sup- 
port from  the  government.  Both  are  available.  Any  industry 
can  utilize  its  trade  association  as  a  medium  of  assistance  in 
foreign  trade  development  or  it  may  create  a  separate  export 
association  to  engage  solely  in  export  trade.  Both  will  have  the 
effective  assistance  of  the  various  government  agencies  interested 
in  foreign  trade,  such  as  the  Commerce  Department,  the  Federal 
Trade  Commission,  the  Tariff  Commission,  the  State  Department 
and  the  Federal  Reserve  Board. 

Foreign  Trade  Work  by  Trade  Associations. — A  trade  as- 
sociation with  a  foreign  trade  department,  can  be  very  helpful 
to  its  members  who  have  a  foreign  business.  The  Tanners' 
Council,  for  example,  have  made  their  association  of  practical 

221 


222  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

help  to  its  members.1  This  association  maintains  a  large  file  of 
credit  reports  on  buyers  throughout  the  world.  It  has  pub- 
lished an  international  code  for  use  by  the  hide  and  leather 
trade,  which  has  enabled  its  users  to  cut  their  bills  in  half.  It 
aids  in  the  adjustment  of  complaints  arising  out  of  sales  of 
goods  to  foreign  buyers,  in  order  to  protect  the  good  repute  of 
American  goods  in  foreign  markets.  Information  regarding 
foreign  tariffs,  marking  regulations,  regulations  regarding  trav- 
eling salesmen,  foreign  patents  and  trade-mark  laws,  and  many 
other  difficult  questions  are  furnished  the  members.  The  Inter- 
national Association  of  Garment  Manufacturers  maintains  an 
export  bureau  which  advises  its  members  as  to  packing,  labeling 
and  shipping,  furnishes  lists  of  advertising  mediums  and  adver- 
tising suggestions,  maintains  credit  ratings  on  foreign  buyers 
and  assists  its  members  in  every  way  possible  in  the  furtherance 
of  their  export  trade.2  The  National  Association  of  Manufac- 
turers also  maintains  a  foreign  trade  department,  with  the  fol- 
lowing divisions:  Latin- American  Division,  Far  Eastern  Di- 
vision, Russian  Division,  Credit  Investigation  Bureau,  Compila- 
tion Bureau,  Translation  Bureau,  Trade-marks  Bureau,  Customs 
Tariff  Division,  Bureau  of  General  Investigation  and  Special 
Service  Division.3  Secretary  Hoover  is  rapidly  developing,  in 
the  Department  of  Commerce,  a  great  organization  for  coopera- 
tion with  business  men  in  the  development  of  foreign  trade. 
Some  seventy  committees  from  the  various  trade  associations  of 
the  country,  representing  about  150,000  firms  have  been  ap- 
pointed to  work  in  close  cooperation  with  the  Department,  in 
order  to  maintain  intimate  contact  with  foreign  trade  develop- 
ment.4 The  Bureau  of  Foreign  &  Domestic  Commerce  is  en- 
deavoring to  keep  in  closest  possible  touch  with  foreign  trade 
matters,  whether  they  be  tariff  changes,  packing  methods,  op- 

1  Edward  A.  Brand,  Secretary,  Tanners'  Council,  New  York  Evening 
Post,  April  1,  1922. 

2  A.  F.  Allison,  Secretary,  New  York  Evening  Post,  April  1,  1922. 

3  National  Trade  Association,  A  Study  by  the  National  Assn.  of  Manu- 
facturers, 1922,  p.  109. 

*  Address,  Dr.  Julius  Klein,  Chief,  Bureau  of  Foreign  &  Domestic 
Commerce,  Official  Summary,  Proceedings,  Conference  Trade  Assn.  Repre- 
sentatives, Washington,  D.  C.  April  12,  1922. 


FOREIGN  TRADE  223 

portunities  for  new  business  or  what  not.  It  maintains  a  force 
of  commercial  attaches  and  trade  commissioners  in  many  coun- 
tries to  aid  in  the  development  of  new  business  for  American 
firms.  In  order  to  secure  the  quickest  diffusion  of  trade  infor- 
mation at  the  minimum  of  expense,  and  to  prevent  such  confi- 
dential data  reaching  foreign  competition,  the  Department  is 
now  utilizing  the  trade  association  as  the  medium  of  distribu- 
tion. Any  trade  association  whose  members  are  interested  in 
foreign  trade  should  not  fail  to  avail  itself  of  the  valuable  as- 
sistance of  this  bureau,  as  well  as  the  aid  of  the  Consular  Serv- 
ice and  Trade  Advisers'  Office  of  the  State  Department. 

Export  Associations. — On  the  recommendation  of  the  Fed- 
eral Trade  Commission,  the  National  Foreign  Trade  Council 
and  various  trade  bodies  of  the  country,  Congress  in  1918  passed 
.the  Export  Trade  Act,  known  as  the  Webb-Pomerene  law.  This 
Act,  as  has  already  been  pointed  out,5  limits  the  prohibitions  of 
the  Sherman  Law  and  permits  the  American  business  man  to 
form  cooperative  selling  agencies  for  the  disposition  of  his  prod- 
ucts in  foreign  trade.  In  a  general  way  it  may  be  said,  this  Act 
recognizes  the  formation  of  combinations,  or  associations  of 
manufacturers  or  others  engaged  solely  in  export  trade,  pro- 
vided they  neither  restrain  trade  in  the  United  States  nor  re- 
strain the  export  trade  of  their  domestic  competitors.  Any  acts 
done  by  such  associations  in  export  trade  are  also  made  lawful 
if  they  do  not  intentionally  or  artificially  enhance  or  depress 
domestic  prices,  or  substantially  lessen  competition,  or  other- 
wise restrain  trade  in  this  country.  But  no  unfair  acts  against 
American  competitors  in  foreign  trade  are  permitted.  The  pro- 
hibitions of  Section  7  of  the  Clayton  Act  against  intercorporate 
stockholders  is  qualified,  by  the  permission  granted  to  any  cor- 
poration to  own  stock  in  an  incorporated  export  association, 
unless  the  effect  of  such  ownership  is  to  substantially  lessen 
competition  in  the  United  States.  This  Act,  therefore,  may  be 
broadly  said  to  remove  the  prohibitions  of  the  Sherman  Law  in 
so  far  as  it  applies  to  export  trade  solely,  and  so  long  as  there 
are  no  undue  reactions  on  the  domestic  situation. 

On  June  30,  1921,  there  were  48  such  export  associations  do- 

5  See  p.  12.    For  text  of  act,  see  p.  292. 


224  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

ing  business,  including  in  their  membership  about  1,000  plants 
and  factories  scattered  over  forty-one  states.6  During  1920, 
despite  the  great  handicaps  on  exportation,  imposed  by  economic 
conditions,  goods  valued  at  approximately  $221,000,000  were  ex- 
ported by  such  associations.7  Among  the  commodities  handled 
by  these  organizations  were  steel,  copper,  cement,  lumber,  food- 
stuffs, locomotives,  textile  and  foundry  material,  paper,  tanning 
materials,  paint,  furniture,  office  equipment,  and  general  mer- 
chandise. Some  of  these  associations,  such  as  the  Consolidated 
Steel  Corporation  and  the  Copper  Export  Association  which  are 
strongly  financed  and  control  a  large  percentage  of  the  supply 
available  for  export,  have  quickly  become  very  powerful  factors 
in  our  export  trade. 

Advantages  of  Export  Associations. — There  are  many  ad- 
vantages accruing  to  the  members  of  such  organizations.8  First, 
such  an  organization,  if  it  controls  the  bulk  of  the  export  sup- 
ply, frees  its  members  from  the  old  practice  of  foreign  buyers 
of  playing  one  American  merchant  against  another  until  prices 
were  unduly  depressed.  An  export  association  can  deal  on  a 
parity  with  combinations  of  foreign  buyers,  or  with  govern- 
mental buying  organizations.  Secondly,  distribution  costs  are 
greatly  decreased.  Advertising  expense  and  general  selling  ex- 
pense per  unit  can  be  reduced.  An  expert  personnel,  too  costly 
for  a  single  exporter  to  employ,  can  be  maintained.  Overhead 
expenses  of  all  kinds  can  be  lessened.  Information  regarding 
foreign  market  conditions,  shipping  facilities,  improved  packing 
methods,  credit  standing  of  foreign  purchasers  can  be  more  com- 
prehensively and  accurately  secured.  Third,  the  requirements 
of  foreign  buyers  can  be  more  exactly  satisfied.  The  product 
can  be  standardized  and  also  clearly  identified  through  an  asso- 
ciation trade-mark.  Shipments  can  be  prepared  and  inspected 
by  an  association  representative,  with  a  resulting  decrease  in 
claims  and  disputes.  Cargo  shipments  of  bulk  commodities  can 

«  Annual  Report,  Federal  Trade  Commission,  1921,  p.  59,  60. 

7  Ibid.,  p.  60. 

8  For   a  complete   statement  of   advantages   of   such   associations,   see 
Annual  Report,  Federal  Trade  Commission,  1921,  p.  61;   also,  Article  by 
William  Notz,  Chief  Export  Trade   Division,  Federal  Trade  Commission, 
Commerce  Reports,  February,  1922,  p.  482. 


FOREIGN  TRADE  225 

be  more  readily  handled  and  prompter  delivery  assured. 
Fourth,  domestic  trade,  seasonal  in  character,  may  be  stabilized. 
The  paint  industry,  for  example,  is  endeavoring  to  develop 
markets  in  South  America  to  counter-balance  the  lessening  do- 
mestic demand  during  the  winter  months.9 

Finally,  an  industry  is  placed  in  a  much  stronger  position 
for  competition  with  foreign  selling  organizations  in  interna- 
tional trade.  Great  combinations  have  been  formed  and  are 
constantly  being  formed  in  foreign  countries  whose  competition 
will  have  to  be  met  by  American  industry.  The  British  Woollen 
Trades'  Export  Association,  the  Canadian  Export  Paper  Com- 
pany, the  Union  of  German  Exporters,  the  Comptoir  for  the  Ex- 
portation of  Metallurgical  Products  of  France,  the  Swedish 
Wood  Export  Association,  the  Purchasing  &  Selling  Association 
of  Cotton  Spinners  of  Czecho-Slovakia,  and  the  Chile  Nitrate 
Association,  are  typical  of  the  recent  great  foreign  organizations 
formed  for  active  participation  in  international  trade.10 

Membership. — An  export  association  may  be  formed  with  the 
purpose  of  controlling  the  export  trade  of  a  commodity,  or  with 
the  purpose  merely  of  providing  an  efficient  selling  agency  for  a 
few  members.  Typical  of  the  first  type  of  association  is  the 
Copper  Export  Association,  while  the  American  Milk  Products 
Corporation  is  an  example  of  the  latter.  A  determination  of 
this  question  will  also  decide  the  number  of  members  and  the 
character  of  the  membership.  A  large  membership,  while  it 
gives  great  trade  advantages,  through  the  substantial  control 
acquired  over  export  trade,  may  cause  difficulty  in  operation  by 
reason  of  disputes  over  allocation  of  orders,  division  of  profits 
and  so  on.  The  Copper  Export  Association  opens  its  member- 
ship to  any  producers.  The  United  States  Office  Equipment 
Export  Association  provides  that  no  member  shall  be  admitted 
except  upon  consent  of  the  present  members.  The  Douglas  Fir 
Exploitation  and  Export  Company  limits  its  membership  to  the 
concerns  engaged  in  the  manufacture  of  lumber  on  the  Pacific 
Coast.  A  smaller  organization  avoids  these  difficulties  of  man- 
agement and  tends  to  secure  flexibility  and  speedier  adminis- 

9  Commerce  Reports,  Department  of  Commerce,  February,  1922,  p.  482. 

10  Annual  Report,  Federal  Trade  Commission,  1921,  p.  63. 


226'  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tration.  But  unless  it  controls  a  substantial  proportion  of  the 
production,  its  control  of  the  export  market  will,  of  course,  be 
negligible. 

Organization. — Having  determined  on  its  membership,  the 
members  must  decide  upon  the  form  of  organization.  An  ex- 
port association  requires  very  careful  planning,  which  should 
not  be  attempted  without  advice  of  counsel.  The  form  of  or- 
ganization, the  methods  of  raising  capital,  the  control  of  the  cor- 
poration, the  allocation  of  orders,  the  division  of  profits,  com- 
pliance with  State  incorporation  laws,  and  compliance  with  the 
Webb  Act  require  very  careful  consideration.  They  can  fix 
their  organization  by  contract,  or  they  can  incorporate  under 
State  laws.  If  the  organization  is  effected  by  contract  and  there 
are  only  a  few  members,  simplicity  and  flexibility  are  secured 
and  corporation  taxes  and  regulations  largely  avoided.  The 
United  States  Office  Equipment  Export  Association  was  formed 
in  this  way.  But  on  the  other  hand,  there  may  be  a  personal 
liability  attached  to  each  member.  Practically  all  export  asso- 
ciations thus  far  formed,  have  been  incorporated  because  of  the 
obvious  advantages  of  such  a  form  of  organization.  Individual 
liability  of  stockholders  is  avoided.  The  existence  of  the  cor- 
poration is  clearly  defined  and  cannot  be  affected  by  the  death 
or  disability  of  any  member.  The  member's  interest  is  definite. 
Changes  in  the  form  of  organization  and  methods  of  doing  busi- 
ness may  also  be  readily  secured.  Most  export  associations  have, 
therefore,  adopted  the  corporate  form  of  organization. 

The  capital  requirements  of  an  association  are  controlled  by 
its  method  of  operation.  An  association  acting  merely  as  an 
agent,  will  not  need  as  much  capital  as  one  buying  the  product 
outright.  If  each  member  finances  the  business  allotted  to  him 
until  delivery  on  the  pier,  much  less  capital  will  be  needed.  A 
sufficient  capital  should  be  provided  to  give  the  banks  protec- 
tion and  also  to  provide  a  reasonable  fund  for  exigencies.  The 
reputation  of  the  members  of  the  association  will,  of  course, 
furnish  a  certain  credit  standing.  If  the  association  is  not  in- 
corporated, capital  can  be  secured  by  assessment  to  the  amount 
provided  for  by  agreement.  If  the  association  is  incorporated, 
the  necessary  capital  for  operation  is  usually  secured  by  stock 
subscription.  Some  export  associations,  such  as,  the  Consoli- 


FOREIGN  TRADE  227 

dated  Steel  Corporation,  have  a  large  amount  of  stock  issued. 
The  Copper  Export  Association,  has  secured  a  considerable 
amount  of  capital  through  the  sale  of  its  notes  to  members  and 
outside  parties.  Stock  subscriptions  may  be  made  on  several 
bases.  They  may  be  voluntary  and  in  such  amount  as  each 
member  desires  to  subscribe.  They  may  be  fixed  on  the  basis  of 
relative  production,  capacity  or  on  the  total  sales  of  members. 
A  reasonably  fair  method  is,  if  the  concerns  interested  have  been 
engaged  in  foreign  trade,  to  apportion  capital  requirements 
among  the  members  on  the  total  average  export  sales  over  a 
period  of  years. 

The  control  of  the  association  should  be  carefully  deter- 
mined and  clearly  understood  by  all  members.  It  will  usually 
not  be  found  wise  to  permit  outsiders  to  hold  the  stock  carry- 
ing voting  powers.  Voting  powers  may  be  based  either  upon 
the  stock  subscription,  as  is  the  custom  with  the  ordinary  cor- 
poration, or  it  may  be  found  desirable  to  give  each  member 
only  one  vote,  regardless  of  the  number  of  shares  owned  by 
him.  Such  an  arrangement  is,  of  course,  attractive  to  the 
smaller  manufacturer  and  is  more  likely  to  secure  the  support  of 
the  whole  industry  and  the  association.  The  American  Paper 
Exports,  Inc.,  and  several  other  associations,  give  one  vote  per 
share  of  stock  held.  The  Douglas  Fir  Exploitation  and  Export 
Company,  in  order  to  prevent  any  control  of  the  association  for 
private  purposes  against  the  best  interests  of  the  industry,  gives 
each  stockholder  one  vote,  regardless  of  the  amount  of  stock  held 
by  him  and  has  established  a  voting  trust,  the  Trustee  voting 
the  remaining  stock  in  accordance  with  the  majority  vote  of  the 
stockholders. 

The  methods  of  operation  of  such  associations  are  constantly 
changing,  in  response  to  changes  of  conditions.  The  following 
illustrations  of  typical  plans  of  operation  are  outlined  by  Dr. 
William  Notz,  Chief  of  the  Export  Trade  Division,  Federal 
Trade  Commission: 

Association  A  (incorporated),  which  has  been  in  successful  operation 
for  about  three  years,  sells  in  the  export  market  such  products  as  are 
pledged  for  that  purpose  by  its  members  (stockholders),  accounting  to 
them  for  the  average  prices  realized  on  such  sales  quarterly  as  prescribed 
by  agreement.  The  association  sells  also  on  a  commission  basis  for  other 


228  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

concerns  (not  members  of  the  association)  and  occasionally  it  buys  goods 
in  the  open  market  in  order  to  complete  shipment  on  orders  taken  by  the 
association  for  export  sales. 

Association  B  (unincorporated)  exports  raw  material,  operating  un- 
der an  agreement  which  provides  that  the  association  through  its  council, 
which  consists  of  one  representative  from  each  member,  fixes  minimum 
prices,  form  of  sales  contracts,  and  other  regulations  governing  export  sales, 
the  orders  for  which  are  obtained  by  the  manager  of  the  association,  either 
direct  from  the  foreign  consumer  or  through  agents  abroad,  and  are  allo- 
cated by  the  manager  among  the  members  of  the  association  according  to 
predetermined  percentages  of  participation.  All  expenses  incurred  by  the 
association  are  borne  by  all  members  at  the  time  the  expense  accrues,  in 
proportion  to  their  respective  predetermined  percentage  of  participation. 

Association  C  (incorporated)  is  an  exporter  of  foodstuffs  and  sells  the 
products  of  its  members  in  various  foreign  countries  through  agents,  who, 
in  most  cases,  have  contracted  to  represent  the  association  exclusively  in 
their  territories.  Through  American  banks  the  association  draws  upon  the 
buyer  for  the  purchase  price,  either  directly  or  through  the  foreign  agents. 
The  association  also  consigns  goods  to  some  of  its  agents  abroad  for  sale  by 
them  while  in  transit  or  as  soon  after  arrival  as  is  convenient;  and  at  the 
same  time  the  association  draws  upon  the  agents  for  a  portion  of  the 
market  value  of  the  goods.  When  the  sale  to  the  foreign  buyer  is  accom- 
plished, the  agents  remit  the  full  sale  price  to  the  association. 

Association  D  (unincorporated)  is  composed  of  manufacturers,  and 
all  the  subscribing  firms  contract  to  do  all  export  business  through  the 
association.  The  association  makes  all  contracts  with  foreign  representa- 
tives, and  export  agents  receive  all  orders  and  apportion  them  to  members. 
Members  deliver  and  invoice  merchandise  to  the  association,  which  be- 
comes immediately  liable  for  the  sale  price  thereof.  The  association  as- 
sumes all  the  responsibility  and  risk  of  shipment,  insurance,  export  docu- 
ments, credit,  etc.,  and  as  the  organization  is  purely  mutual,  these  ex- 
penses and  loss  (if  any)  are  prorated  among  members  upon  the  basis  of 
business  done  with  and  through  the  association. 

Association  E  ( incorporated ) ,  which  contracts  for  the  exportation 
and  installation  of  especially  prepared  products,  advertises  for  and  solicits 
business  in  various  foreign  countries.  As  orders  are  accepted  or  contracts 
made,  the  association  buys  from  its  member  companies  the  supplies  needed 
for  the  filling  of  such  order  or  contract,  buying  from  oustide  concerns  any 
goods  not  supplied  by  the  member  companies. 

Association  F  (incorporated)  is  a  combination  of  mills.  All  stock- 
holders have  agreed  to  sell  for  export  only  through  the  association  and  to 
refer  all  inquiries  to  the  office  of  the  association,  where  all  quotations  are 
made  and  all  business  transacted.  The  association  issues  orders  to  the 
member  for  such  material  as  is  sold,  according  to  the  percentage  of  stock 
held  in  the  company  ( association ) .  All  documents  are  in  the  name  of  the 
association  and  goods  exported  bear  a  common  brand.  Payment  of  in- 


FOREIGN  TRADE  229 

voices  for  goods  shipped  is  made  upon  100  per  cent  f.o.b.  seaboard  basis, 
after  deduction  of  c.i.f.  expenses.  The  gross  monthly  expenses  for  the 
operation  of  the  company  (association)  are  charged  to  the  member  con- 
cerns upon  a  percentage  basis  determined  by  the  relative  holding  of  stock 
without  par  value  of  each  member.n 

Such  plans  of  operation,  of  course,  must  be  very  carefully  pro- 
vided for  in  the  by-laws  and  agreements  made  by  the  associa- 
tion with  the  individual  members. 

Legality  of  Export  Associations.12 — The  Webb  Act  was  de- 
signed to  remove  the  restriction  of  the  Sherman  Law  so  far  as 
the  law  was  applicable  to  combined  sales  agencies  in  export 
trade.13  The  Senate  Committee  in  the  report  just  cited,  how- 
ever, stated  the  intention  of  Congress  to  limit  the  activities  of 
such  associations  as  follows: — 

".  .  .  the  committee  aims  to  place  three  limitations  upon  these 
associations,  their  acts  and  agreements: 

"(a)  The  authority  hereby  conferred  should  not  result  in  restraint 
of  trade  within  the  United  States  which  is  clearly  prohibited  by  the 
Sherman  law. 

"(b)  While  the  purpose  of  the  bill  is  to  increase  our  foreign  trade, 
it  should  not  result  in  destroying  the  business  of  other  companies, 
associations,  or  individuals,  who  may  be  engaged  in  foreign  trade.  The 
purpose  is  to  increase  and  improve  this  trade  and  not  to  injure  it. 

"(c)  While  we  realize  that  any  sales  in  foreign  commerce  may 
incidentally  and  temporarily  result  in  the  increase  in  prices  of  the 
same  articles  to  home  consumers,  these  associations  ought  not  to  be 
permitted  to  so  conduct  their  affairs  as  to  artificially  or  intentionally 
and  unduly  enhance  prices  of  the  commodities  in  which  they  are  deal- 
ing to  the  home  consumer." 

i?-  Commerce  Reports,  February,  1922,  p.  481.  For  other  valuable  sug- 
gestions, see  Official  Report,  Fourth  National  Foreign  Trade  Convention, 
1917,  pp.  265-86;  Proceedings,  Ninth  Annual  Convention,  American  Manu- 
facturers' Export  Assn.,  1918,  pp.  298-315. 

12  For  a  complete  legal  discussion  of  the  Webb  Act,  see  Chaps.  XII, 
XIII  and  XIV  of  the  valuable  treatise,  "American  Foreign  Trade,"  by 
William  F.  Notz  and  Richard  S.  Harvey. 

is  Report  No.  9,  Senate  Committee  on  Interstate  Commerce,  65th 
Congress,  1st  Session,  p.  3;  Report  No.  1118,  House  Committee  on  the 
Judiciary,  64th  Congress,  1st  Session,  p.  3. 


TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

To  preserve  the  benefits  flowing  from  immunity  from  the 
Sherman  Act,  a  cooperative  selling  association  must  be  ex- 
ceedingly careful  to  comply  with  all  the  requirements  of  the 
law.  It  is  expressly  provided,  and  this  cannot  be  overempha- 
sized, that  such  an  association  can  engage  only  in  ''export 
trade. "  The  words  "export  trade"  are  defined  by  Section  1  of 
the  act  as  meaning  solely  trade  or  commerce  in  goods,  wares  or 
merchandise  exported,  or  in  the  course  of  being  exported  from 
the  United  States  or  any  Territory  thereof  to  any  foreign  na- 
tion. It  is  specifically  provided  that  these  words  shall  not  be 
deemed  to  include  "the  production,  manufacture  or  selling  for 
consumption,  or  for  resale,  within  the  United  States  or  any 
Territory  thereof,  of  such  goods,  wares  or  merchandise,  or  any 
act  in  the  course  of  production,  manufacture  or  selling  for  COOT 
sumption  or  for  resale."  The  definition  of  the  word  "export 
trade"  would  seem  to  require  such  an  association  as  such  to 
actually  trade  in  the  physical  goods  with  the  intention  of  mak- 
ing another  country  the  final  destination  of  the  goods.14  A  lib- 
eral interpretation  of  the  word  "commerce"  however  might 
justify  the  organization  of  an  association  merely  for  the  pur- 
pose of  agreeing  as  to  the  price  to  be  charged  on  all  export  sales. 
The  word  commerce  means  more  than  the  sale  or  exchange  of 
commodities  which  is  really  embodied  in  the  word  trade.  The 
term  apprehends  also  commercial  intercourse  between  nations 
and  parts  of  nations  in  all  its  branches  and  all  the  instruments 
by  which  commerce  is  conducted.15  Every  negotiation,  initia- 
tory and  intervening  act,  or  contract  between  parties  which 
causes  a  traffic  in  goods  or  information  is  commerce.16  It  is 
therefore  not  certain  but  that  an  organization  merely  for  con- 
trolling the  prices  made  on  export  sales  by  its  members  could 
secure  the  benefits  of  the  law.  The  danger,  however,  of  such  an 
organization  affecting  domestic  prices,  as  well  as  the  apparent 

i*  See  Swan  &  Finch  Company  vs  United  States,  190  U.  S.  143  (1902) ; 
Thompson  vs  United  States,  142  U.  S.  471. 

is  Snead  vs  Central  of  Georgia  R.  R.  Co.,  151  Fed.  608,  613;  Gibbons 
vs  Ogden,  9  Wheat  (U.  S.)  1,  229;  Hopkins  vs  United  States,  171  U.  S. 
578. 

is  United  States  vs  Tucker,  188  Fed.  741,  743. 


FOREIGN  TRADE  231 

attitude  of  the  Federal  Trade  Commission,  would  make  such  an 
organization  unwise.  The  association,  therefore,  should  be  an 
actual  selling  organization. 

Its  sales  in  the  United  States  must  be  solely  of  goods  in  the 
course  of  being  exported  from  this  country  or  any  of  its  terri- 
tories. Such  an  association  may  sell  to  buyers  in  foreign  coun- 
tries, or  their  representatives  in  the  United  States  for  exporta- 
tion. There  has  been  some  question  as  to  whether  the  act  per- 
mits the  sale  of  goods  within  the  United  States  for  export.  The 
intent  of  Congress  to  permit  this  is  clearly  shown  by  the  follow- 
ing language,  appearing  in  the  report  of  the  Senate  Committee 
on  Interstate  Commerce : 1T 

"We  desire,  of  course,  to  authorize  associations  for  the  sole  pur- 
pose of  selling  abroad.  In  order  to  do  this,  they  must  have  the  right 
to  acquire  or  buy  within  the  United  States,  and  the  right  to  sell  within 
the  United  States  for  the  foreign  market." 

In  the  event,  however,  any  sale  is  made  within  the  United  States 
to  any  foreign  buyer  or  export  house,  the  association,  as  a 
measure  of  protection,  should  secure  from  the  buyer  a  state- 
ment that  the  goods  are  being  purchased  for  exportation. 

An  export  association  formed  under  the  law,  cannot  sell 
within  the  United  States  for  domestic  consumption  or  resale.18 
It  cannot  produce  or  manufacture  goods  in  this  country,  al- 
though it  may  have  goods  produced  or  manufactured  for  it 
under  contract.  Both  the  wording  of  the  act  and  the  intent  of 
Congress  is  clear  on  this  point.19  It  can  probably  assemble  its 
product  abroad  or  manufacture  articles  abroad  from  goods  ex- 
ported by  it. 

An  association  organized  under  the  Act,  under  the  wording 
of  Section  1,  cannot  export  to  the  Philippine  Islands,  Porto 
Rico,  Alaska,  Hawaii,  or  the  Panama  Canal  Zone.  It  appears 
also  that  export  associations  may  be  formed  in  Hawaii,  Alaska 
and  Porto  Rico,  but  that  their  formation  is  not  permitted  in 

I?  Rep.  No.  9,  April  16,  1917,  65th  Congress,  1st  Session,  p.  2. 
is  Ibid.,  p.  2. 
i»  IUd.,  p.  2, 


232  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  Philippines,  the  Panama  Canal  Zone,  Guam  and  the  other 
small  insular  possessions  of  the  United  States.20 

Nor  can  such  an  association  import  goods  into  the  United 
States.  If  it  does  so  it  loses  the  immunity  conferred  by  the 
Act.  If  its  importations  are  so  substantial  that  they  unduly 
restrict  competition  in  such  products  in  domestic  trade,  it  will 
also  be  liable  to  prosecution  for  violation  of  the  Sherman  Law. 
In  making  importations,  it  might  also  run  afoul  of  certain  live 
provisions  of  the  old  Wilson  Tariff  Act.  Section  73  of  this  Act, 
as  amended  in  1913,  declares  unlawful  every  combination,  con- 
spiracy, trust,  agreement,  or  contract,  between  two  or  more  per- 
sons engaged  in  exporting  any  article  from  a  foreign  country 
into  the  United  States,  when  ''intended  to  operate  in  restraint 
of  lawful  trade  or  free  competition  in  lawful  trade  or  com- 
merce, or  to  increase  the  market  price  in  any  part  of  the 
United  States  of  any  articles  imported,  or  intended  to  be  im- 
ported into  the  United  States,  or  of  any  manufacture  into  which 
such  an  imported  article  enters,  or  is  intended  to  enter. "  In 
view  of  these  various  considerations,  therefore,  such  an  asso- 
ciation should  not,  under  any  circumstances,  engage  in  the  im- 
portation of  goods.  It  is  not  improbable,  however,  that  such 
an  association  could  lawfully  accept  foreign  goods,  in  payment 
for  its  own  goods,  disposing  of  such  goods  abroad,  if  such  action 
was  incidental  and  necessary  to  the  conduct  of  its  export  trade. 

Section  2  of  the  act  places  careful  limitations  upon  such  an 
association  to  protect  domestic  trade  from  any  unlawful  re- 
straints. The  fear  was  constantly  expressed  during  the  debates 
in  Congress,  that  the  formation  of  great  export  combinations 
would  have  harmful  reactions  on  domestic  conditions.21  For 
this  reason,  various  restrictions  were  imposed  on  such  organiza- 
tions. The  law  very  clearly  provides  that  an  export  association 
must  not,  by  any  act,  restrain  trade  within  the  United  States, 
or  restrain  the  export  trade  of  any  domestic  competitor.  It 
cannot  lawfully  enter  into  any  agreements  or  conspiracy,  or  do 

20  See  "American  Foreign  Trade,"  by  Notz  &  Harvey,  p.  181  ff.  for  com- 
prehensive discussion. 

21  Congressman  Graham,  Cong.  Record,  June  13,  1917,  p.  3850;   Con- 
gressman Cannon,  ibid.,  3840;  House  Report  No.  50,  Minority  Report  Com- 
mittee on  Judiciary,  65th  Cong.,  1st  Session,  p.  8. 


FOREIGN  TRADE  233 

any  act  which  artificially  or  intentionally  enhances  or  depresses 
prices  within  the  United  States  of  commodities  of  the  class  ex- 
ported by  the  association,  or  which  substantially  lessens  com- 
petition or  otherwise  restrains  trade  within  the  United  States. 
It  was  recognized  by  Congress  that  the  enlargement  of  our  for- 
eign trade  might  withdraw  a  portion  of  the  production  from 
domestic  trade  and  result  in  an  incidental  increase  in  price, 
due  to  the  natural  operation  of  the  law  of  supply  and  demand.22 
As  long  as  the  increase  is  not  artificially  or  intentionally  brought 
about,  it  is  not  unlawful.     It  was  pointed  out  in  the  debates 
that  such  an  incidental  effect  upon  the  domestic  market  might 
spring  from  any  increase  in  foreign  trade  and  that  to  compel 
producers  to  confine  themselves  to  home  markets,  because  of  this 
effect,  would  result  in  stagnation.23    It  is  forbidden,  by  Section 
4,  to  use  any  unfair  methods  of  competition  in  its  export  trade 
against  competitors  engaged  in  export  trade,  even  though  such 
methods  are  used  outside  the  territorial  limits  of  the  United 
States.    This  provision  enlarges  the  prohibitions  of  existing  laws, 
as  under  the  decision  of  the  Supreme  Court,  the  provisions  of 
the  Sherman  Act  did  not  extend  to  acts  done  in  foreign  coun- 
tries, even  though  they  were  done  by  American  citizens  and  in- 
jured other  citizens  of  the  United  States.24    While  these  various 
provisions  may  sound  complicated,  in  fact  they  are  not.     They 
simply  mean  that  such  an  association  must  not  engage  in  do- 
mestic trade  or  take  any  action  injuriously  affecting  competi- 
tion, or  prices,  in  domestic  trade,  and  that  fair  methods  must  be 
used  against  American  competitors  in  foreign  trade. 

Every  association  formed  should  carefully  comply  with  the 
statutory  requirements.  Section  5  of  the  act  provides  that 
every  association  within  thirty  days  after  its  creation  shall  file 
with  the  Federal  Trade  Commission  a  verified  statement,  setting 
forth  the  location  of  its  offices,  places  of  business,  the  names  and 
addresses  of  its  officers,  stockholders,  or  members.  If  a  corpora- 
tion, the  association  must  file  a  copy  of  its  corporate  charter  and 

22  Senate  Rep.  No.  9,  Report  of  Committee  on  Interstate  Commerce, 
65th  Cong.,  1st  Session,  p.  3. 

23  Congressman  Caraway,  Cong.  Record,  June  13,  1917,  p.  3849. 

24  American  Banana  Company  vs   United  Fruit  Company,  213  U.  S. 
347  (1909). 


234  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

by-laws.  If  unincorporated,  a  copy  of  its  articles  or  contract 
of  association  must  be  furnished  the  Commission.  This  state- 
ment must  be  furnished  annually  thereafter  on  the  first  day  of 
January.  It  is  also  required  to  furnish  any  information  re- 
quested by  the  Commission  as  to  its  organization,  business,  con- 
duct, practices,  management  and  relation  to  other  concerns. 
Any  association  failing  to  comply  with  these  requirements  is 
liable  to  forfeit  to  the  United  States  one  hundred  dollars  for 
each  day's  failure  to  supply  the  data  required.  Parties  propos- 
ing the  formation  of  export  associations  will  find  it  helpful  to 
consult  with  Commission  officials  in  the  formation  of  their  plan 
of  organization. 

The  effectiveness  of  export  associations  as  an  agency  in  inter- 
national trade  is  being  tested.  Already  some  associations  formed 
have  perished.  Other  associations,  such  as  the  Consolidated 
Steel  Corporation  and  the  Copper  Export  Association,  have  be- 
come very  powerful  organizations.  The  general  movement 
towards  centralized  buying  in  Europe,  the  further  development 
of  great  combinations  abroad,  must  intensify  competition  in  in- 
ternational trade.  It  is  certain  that  more  and  more  world  com- 
petition is  becoming  group  competition,  in  which  the  small 
manufacturer  cannot  hope  to  individually  compete  without  as- 
sistance. It  is  doubtful  whether  any  but  the  larger  manufac- 
turers can  maintain  their  position  in  foreign  trade  against  the 
competition  of  great  units  representing  the  entire  industries  of 
foreign  countries.  If  the  great  bulk  of  the  smaller  manufac- 
turers of  America  are  to  participate  in  the  benefits  flowing  from 
an  established  export  trade,  it  appears  highly  probable  they 
will  have  to  work  through  common  selling  agencies,  such  as  the 
Webb  Act  is  designed  to  legalize.  The  ability  and  salesmanship 
of  American  business  men,  backed  by  the  enormous  economic  re- 
sources of  the  country,  organized  for  effective  cooperation, 
ought  certainly  to  maintain  the  position  of  America  in  foreign 
trade  in  the  face  of  any  and  all  competition. 

Edge  Act. — In  1919,  to  strengthen  American  business  in 
foreign  fields,  the  Edge  Act,  authorizing  the  formation  of  bank- 
ing corporations  to  do  an  exclusive  foreign  banking  business 
was  enacted.25  The  purpose  of  this  law  was  to  afford  agencies 

25  Act  of  December  24,  1919,  Fed.  Stat.  Annot.,  1919,  Supp.,  p.  268. 


FOREIGN  TRADE  235 

through  which  long-term  credits  could  be  financed  in  export 
trade  and  through  which  foreign  securities  could  also  be  han- 
dled. Under  the  provisions  of  the  law,  not  less  than  five  persons 
may  form  such  banking  corporations  to  engage  in  international 
banking  or  financial  operations.  These  banks  are  given  very 
broad  banking  powers.  The  power  is  granted  under  such  regu- 
lations as  the  Federal  Eeserve  Board  may  prescribe,  to  purchase, 
sell,  discount  and  negotiate,  with  or  without  its  endorsement  or 
guaranty,  negotiable  instruments  as  well  as  cable  transfers  and 
other  evidences  of  indebtedness;  to  deal  in  securities,  including 
the  obligations  of  the  United  States  or  any  State  thereof  but  not 
in  the  shares  of  stock  of  any  corporation,  except  those  specifically 
provided  in  the  Act;  to  accept  bills  or  drafts  drawn  upon  it 
subject  to  certain  restrictions;  to  issue  letters  of  credit;  to  pur- 
chase and  sell  coin,  bullion  and  exchange ;  to  borrow  and  to  lend 
money;  to  issue  debentures,  bonds  and  promissory  notes  under 
limitations  prescribed  by  the  Federal  Reserve  Board;  to  receive 
deposits  outside  the  United  States  and  within  the  United  States 
when  for  the  purpose  of  carrying  out  transactions  in  foreign 
countries  and  to  exercise  the  incidental  powers  conferred  by  the 
Act,  or  which  may  be  usual,  in  the  determination  of  the  Federal 
Reserve  Board,  in  connection  with  the  transaction  of  the  busi- 
ness of  banking  where  the  corporation  transacts  its  business. 
Such  banks  are  given  power  to  maintain  branches  or  agencies  in 
foreign  countries  and  to  purchase  and  hold  stock  in  other  cor- 
porations created  under  the  Act  or  in  corporations  not  generally 
engaged  in  the  business  of  buying  and  selling  commodities  in 
the  United  States.  Restrictions  are  provided  as  to  the  amount 
to  be  invested  in  any  one  corporation.  Safeguards  are  provided 
to  protect  the  interests  of  the  public.  Such  an  institution  can 
not  carry  on  any  part  of  its  business  in  the  United  States,  ex- 
cept such  as  in  the  judgment  of  the  Federal  Reserve  Board  is 
incidental  to  its  foreign  business.  It  can  not  exercise  any  of  its 
functions  until  authorized  to  commence  business  by  the  Federal 
Reserve  Board.  It  can  not  engage  in  commerce  or  trade  in  com- 
modities (with  certain  limitations),  nor  directly  or  indirectly 
attempt  to  control  or  fix  the  price  of  any  commodities.  It  must 
have  a  capital  stock  of  $2,000,000  or  more,  one-quarter  of  which 
must  be  paid  in  before  it  can  begin  business.  A  majority  of 


236  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  shares  of  the  stock  of  the  corporation  must  be  owned  by 
American  citizens  or  by  concerns,  the  controlling  interest  in 
which  is  owned  by  citizens  of  the  United  States.  If  such  a  bank 
violates  these,  or  other  specified  provisions  of  the  act,  it  forfeits 
all  its  rights,  benefits  and  franchises,  under  the  act.  Already 
some  very  large  and  powerful  banking  institutions  have  been 
created  under  this  law.  It  gives  promises  of  centralizing  our 
banking  interests  in  foreign  trade,  so  as  to  enable  them  to  more 
effectively  cope  with  conditions  existing  in  international  finance, 
just  as  the  Webb  Export  Act  enables  cooperation  among  busi- 
ness men  in  export  trade.  A  proper  coordination  of  efforts  be- 
tween the  export  associations  of  the  country  and  the  Edge  banks 
ought  greatly  to  strengthen  the  ability  of  American  business  to 
compete  in  world  markets. 


CHAPTER  XV 
GOVERNMENT  RELATIONS 

Contacts  Between  Industry  and  Government. — Most  in- 
dustries have  three  important  forms  of  contact  with  the  Gov- 
ernment. The  first  is  with  Congressional  Committees,  in  the 
consideration  of  pending  legislation.  The  second  is  with  regu- 
latory bodies,  such  as  the  Interstate  Commerce  Commission,  the 
Federal  Trade  Commission,  the  Federal  Reserve  Board  and  the 
Department  of  Agriculture,  in  the  formulation  or  application  of 
regulations.  The  third  is  in  the  formulation  of  constructive 
programs  for  the  good  of  the  industries,  with  those  departments 
such  as  the  Department  of  Commerce,  whose  function  it  is  to 
serve  and  develop  industries  when  such  action  furthers  the 
public  good.  This  third  class  of  activities  has  already  been 
discussed  in  the  preceding  chapters.  In  the  maintenance  of 
helpful  and  informative  relations  with  the  government  involved 
in  the  first  two  contacts  mentioned,  American  industries  have 
been  appallingly  lax. 

Failure  of  Industries  to  Present  Facts. — Many  business  men 
rail  at  Congress  and  at  the  federal  commissions  for  unwise 
legislation  and  harmful  regulation,  when  fully  one-half  the  re- 
sponsibility is  theirs,  because  of  their  utter  failure  to  produce 
facts  to  prove  the  harm  which  will  inevitably  flow  from  the 
proposed  action  of  the  government.  It  is  true  that  the  Cham- 
ber of  Commerce  of  the  United  States  has  been  a  powerful 
factor  in  the  crystallization  of  business  sentiment  and  in  the  ef- 
fective presentation  of  the  viewpoint  of  business  in  general  to 
the  Government.  But  by  the  nature  of  its  organization,  it  is 
limited  in  its  work  to  a  consideration  of  matters  which  have  a 
common  interest  to  industries  generally.  Each  industry  has  its 
own  peculiar  problems  which  constantly  bring  it  in  contact  with 
the  federal  and  state  governments.  Yet,  the  great  majority  of 
American  industries  have  no  organization  whatsoever  for  the 

237 


238  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

comprehensive  compilation  and  presentation  of  facts  to  govern- 
mental bodies. 

The  customary  procedure  is  this.  The  association  maintains 
a  legislative  committee.  This  committee,  if  its  members  are  gen- 
erous and  unselfish  of  their  time,  and  the  industry  is  one  sub- 
ject to  excessive  regulation,  will  probably  closely  follow  govern- 
mental activities.  In  other  industries,  where  the  committees  are 
not  so  active,  not  only  once  but  numerous  times,  it  has  happened 
that  legislation  has  been  on  its  way  to  final  passage,  or  regula- 
tions promulgated,  without  the  knowledge  of  an  industry,  when 
even  a  slight  degree  of  attention  would  have  advised  the  in- 
dustry of  the  pendency  of  such  action.  In  several  instances,  in- 
dustries or  branches  of  industries  have  faced  action  threatening 
their  extinction  before  they  were  even  aware  it  was  proposed. 
During  the  war,  when  priorities  and  other  strict  regulations 
were  necessary,  more  than  one  industry  found  itself  faced  with 
possible  annihilation  because  of  its  lack  of  data  proving  the 
character  of  its  distribution,  its  exact  costs  and  similar  informa- 
tion demanded  by  the  Government.  Constantly,  hearings  are 
being  held  on  legislation  and  proposed  regulations,  where  the 
presentation  of  facts  for  an  industry  is  trivial,  and  in  no  sense 
helpful.  Usually  the  members  of  the  legislative  committee,  or 
other  members  of  the  association  acting  as  substitutes  for  them, 
appear  before  government  officials  on  several  days'  notice  with 
wholly  inadequate  preparation, — with  strongly  expressed  opin- 
ions, but  few  facts.  Group  prejudices  and  factional  agitation 
are  often  the  basis  for  legislative  changes.  In  fact  a  consider- 
able part  of  our  legislation  is  enacted  because  of  the  opinions  of 
large  economic  groups.  Opinions  can  not  be  successfully  fought 
with  mere  opinions.  Facts,  persuasively  and  comprehensively 
marshalled,  are  the  most  effective  weapon  of  protection.  Most 
hearings,  however,  are  remarkable  for  their  paucity  of  facts. 
Yet  it  is  in  industries  where  such  methods  are  followed  that  the 
censure  of  Congress  and  commissions  is  most  severe. 

If  the  business  men  of  an  industry  fail  in  their  duty  to 
maintain  an  organization  which  can  fully,  on  short  notice,  pre- 
sent the  facts  bearing  on  any  proposed  legislation,  when  other 
agencies  are  strongly  supporting  such  action,  they  have  only 
themselves  to  blame  if  unwise  legislation  is  adopted.  If  they 


GOVERNMENT  RELATIONS  239 

force  government  officials  to  draft  regulations,  which  they  are 
under  a  legal  duty  to  promulgate,  with  only  a  partial  knowl- 
edge of  the  facts  because  of  the  failure  of  the  industry  to  co- 
operate in  furnishing  complete  data,  the  sure  penalty  is  unin- 
telligent and  restrictive  regulations.  In  the  shifting  social,  eco- 
nomic and  political  movements  daily  affecting  commerce,  should 
not  every  industry  for  its  own  interest,  as  well  as  the  public 
interest,  be  effectively  organized  to  see  that  the  true  conditions 
of  an  industry  are  at  least  brought  to  the  attention  of  our  legis- 
lators and  our  commissions.  The  voice  of  an  organized  industry 
is  greatly  strengthened  when  it  fortifies  its  opinions  with  facts. 
Value  of  Organization  in  Relations  with  Government. — An 
industry  which  is  thoroughly  organized  can  function  effectively 
in  all  its  relations  with  the  Government.  In  tariff  hearings,  its 
cost  accounting  work  enables  it  to  present  accurate  data  on 
labor  costs  and  on  the  details  of  any  items  of  cost.  Taxes,  like- 
wise, are  of  immense  importance  to  most  industries.  In  the  for- 
mulation of  legislation  with  reference  to  luxury  taxes,  sales 
taxes,  excess  profits  taxes  and  what  not,  an  association's  expert 
statistical  and  economic  organization  can  quickly  gather  rele- 
vant data  and  make  an  effective  portrayal  of  the  certain  eco- 
nomic effects  of  such  legislation.  Facts,  not  theory,  with  refer- 
ence to  such  matters  as  depletion,  depreciation,  average  profits, 
valuations,  and  so  on  can  be  mustered  to  avoid  unreasonable 
tax  regulations.  Transportation  rates,  in  view  of  the  highly 
specialized  organization  of  the  carriers  for  handling  such  mat- 
ters, can  be  held  at  a  reasonable  level,  only  by  a  convincing 
proof  that  proposed  rates  or  changes  are  unreasonable, — some- 
times a  difficult  task,  unless  expert  traffic  men  schooled  in  the 
facts  of  the  industry  are  instantly  available  to  make  a  strong 
presentation.  Proposed  regulations  affecting  competition,  by 
such  bodies  as  the  Federal  Trade  Commission,  can  be  supported 
or  combated  by  proper  action,  if  the  industry  knows  and  pre- 
sents its  facts ;  otherwise  totally  inadequate  evidence  in  a  single 
proceeding  may  mislead  the  commission  and  result  in  the  estab- 
lishment of  hampering  rules  of  law.  In  the  formulation  of  gov- 
ernment standards,  association  research  bureaus  whose  experts 
are  also  fully  informed  as  to  factory  operations  and  trade  con- 
ditions, can  substitute  for  mere  assertions  irrebuttable  data. 


240  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Expert  cooperation  with  the  agencies  of  government,  as,  for 
example,  such  as  that  now  carried  on  by  several  associations 
with  the  Department  of  Commerce,  may  save  enormous  eco- 
nomic waste  to  the  industry  and  to  the  public.  In  endless  ways, 
with  the  growing  complication  of  society,  every  industry  faces 
restrictions  and  demands  for  restrictions,  which  can  only  be 
defeated  or  directed  along  constructive  channels  by  convincing 
proof  of  their  harmfulness.  And  in  many  industries,  effective 
organization  can  make  possible  the  realization  of  constructive 
plans  for  the  good  of  the  industry  and  the  general  public. 

Some  of  the  great  associations  of  the  country,  such  as  the 
National  Automobile  Chamber  of  Commerce,  the  National  Asso- 
ciation of  Lumber  Manufacturers,  the  American  Railway  Asso- 
ciation, the  Southern  Pine  Association,  the  Portland  Cement 
Association,  the  Silk  Association  of  America,  the  National  Asso- 
ciation of  Manufacturers,  the  National  Coal  Association,  and 
others,  are  organized  in  this  manner,  and  their  comprehensive 
organization  and  presentation  of  business  and  economic  data, 
has  repeatedly  been  the  means  of  preventing  the  enactment  of 
unwise  legislation,  of  defeating  harmful  regulations,  and  of 
saving  their  industries  huge  sums  of  money.  The  organization 
of  all  branches  of  an  industry  into  a  single  unit  greatly 
strengthens  the  industry  in  its  relations  with  the  government. 
Typical  of  such  organizations  are  the  National  Dairy  Products 
Committee,  the  American  Lumber  Congress,  and  the  American 
Construction  Council.  Every  industry  needs  such  an  organiza- 
tion for  the  study  of  common  problems  and  for  the  personal 
contact  between  leaders  of  the  industry  which  corrects  mis- 
understandings and  betters  trade  relations. 

National  legislation  and  regulations  have  the  most  far-reach- 
ing effects  for  good  or  ill.  They  can  work  immeasurable  harm 
or  great  benefit.  It  seems  strange  indeed  that  each  industry 
does  not  maintain  an  efficient  organization  qualified,  by  reason 
of  ability  and  possession  of  facts,  to  cope  with  the  constantly 
recurring  situations  which  arise  in  their  relations  with  the  Gov- 
ernment. Sometimes,  of  course,  an  industry  thrives  on  the  con- 
cealment of  facts.  When  an  association,  for  example,  endeavors 
to  secure  an  excessive  duty  per  pound  on  a  commodity  which 
sells  in  the  market  on  a  tonnage  basis,  as  has  been  attempted, 


GOVERNMENT  RELATIONS  241 

such  an  industry  naturally  wants  to  conceal  facts,  but  such  an 
attitude  is  representative  of  very  few  industries.  The  lack  of 
effective  organization  is  due  in  part  to  the  apparent  impossibil- 
ity of  convincing  many  business  men  that  there  is  such  a  thing 
as  an  indirect  or  intangible  benefit,  which  is  .of  practical  benefit 
to  him.  The  greatest  benefits  from  association  activities,  are 
often  the  intangible  benefits,  such  as,  the  stabilization  of  the  in- 
dustry, the  elimination  of  unfair  trade  practices,  or  the  defeat 
of  regulations  which  may  work  great  harm  without  a  corre- 
sponding public  benefit.  The  greatest  difficulty  faced  by  every 
association  in  the  conduct  of  its  work,  is  to  convince  its  own 
membership  that  the  value  of  cooperative  effort,  effectively  or- 
ganized, is  worth  to  each  member  at  least  one-half  the  salary  of 
an  office  boy.  But  the  exceptional  organizations  of  some  in- 
dustries are  an  earnest  of  the  future.  Ultimately,  beyond  doubt, 
every  industry  of  any  importance  in  this  country  will  be  so 
organized  that  it  can  perform  the  duty  it  owes  itself  to  cooper- 
ate with  the  Government  in  working  out  a  constructive  pro- 
gram, based  upon  facts,  in  order  that  the  exercise  of  govern- 
ment control  may  be  reasonable,  fair  and  in  the  interest  of  both 
the  industry  and  the  general  public. 


CHAPTER  XYI 
COLLECTIVE  ACTIVITIES  PROHIBITED  BY  LAW1 

A  TRADE  association  as  such  is  not  unlawful.  Society  itself 
is  an  organization  and  it  does  not  object  to  any  business  organi- 
zation the  purposes  of  which  are  lawful.2  The  courts  recognize 
the  necessity  of  associations  for  the  improvement  and  progress 
of  industry  and  no  legislation  or  public  policy  forbids  such  asso- 

1  The  activities  of  a  trade  association  are   the  acts  of  its  combined 
membership.    A  member  of  an  unincorporated  association  having  knowledge 
of  the  policies  of  the  association  and  acting  in  conformity  with  them,  is  a 
party  to  such  action  and  is  liable  if  the  action  is  unlawful.     Loder  vs 
Jayne,  142  Fed.  1010,  1018    (1906).     Indeed,  such  liability  attaches  if  he 
knows  of  the  illegal  purpose  of  the  association  and  its  illegal  methods,  if 
he  remains  a  member  without  objection  to  any  illegal  action,  even  though 
there  is  no  proof  of  his  individual  participation  in  any  overt  act.     Knauer 
vs  United  States,  237  Fed.  8,  20   (1916).     A  member  whose  association  is 
an  illegal  combination  in  restraint  of  trade  is  liable  for  damages  to  an- 
other resulting  from  the  unlawful  acts  of  the  association,  even  though  he 
had   no   direct   contractual    relationship   with   him.      City   of  Atlanta   vs 
Chattanooga  Foundry  &  Pipe  Works  et  al,  127  Fed.  23,  26   (1903).     An 
association  is   under   a   duty   if   members   under   its   control   commit   un- 
authorized acts  in  furtherance  of  a  general  program  of  the  association,  to 
disavow  such  acts  by  causing  such  offending  members  to  be  disciplined 
or  expelled  or  the  association  will  be  deemed  liable  for  such  acts.     Alaska 
Steamship   Company   vs   International   Longshoremen's  Assn.    et   al.,    236 
Fed.  964,  972    (1916).     By  Section   14  of  the  Clayton  Act,  directors,  of- 
ficers and  agents  of  a  corporation  authorizing  or  doing  acts  in  violation  of 
the  anti-trust  acts  are  liable  to  fine  and  imprisonment.     Stockholders  in 
an  incorporated  association  who  directly  participate  in  the  unlawful  acts 
are  individually  liable.    Fletcher's  Cyclopedia  on  Corporations,  Vol.  6,  Sec- 
tion 4138.    Every  member  of  a  trade  association  ought,  therefore,  to  know 
in  a  general  way  the  types  of  combined  actions  which  are  prohibited  by 
the  anti-trust  laws,  and  every  association  should  have  as  its  counsel  an 
attorney  fully  informed  as  to  the  scope  and  purposes  of  this  legislation. 

In  this  discussion  not  only  court  decisions,  but  also  indictments,  peti- 
tions, and  consent  decrees  are  cited.  While  not  controlling  or  legal  prece- 
dents, indictments  and  consent  decrees  are  persuasive  evidence  of  the  atti- 
tude of  the  government  which  no  association  official  can  afford  to  ignore. 

2  Oompers  V8  Buck  Stove  d  Range  Co.,  221  U,  S,  418,  439  (1911), 

242 


ILLEGAL  COLLECTIVE  ACTIVITIES  243 

ciations  when  organized  and  maintained  for  proper  purposes.3 
But  the  test  of  lawfulness  of  an  act  by  a  trade  association  is 
more  severe  than  the  test  applied  to  individual  acts.  There  is  * 
a  potency  in  numbers  either  for  good  or  evil  which  causes  the 
law  to  view  with  extreme  care  any  associated  action  which  may 
affect  competition.  This  view  is  expressed  in  the  following  lan- 
guage by  a  Pennsylvania  Court  quoted  by  Justice  Harlan  in  the 
Knight  Case: 

"The  increase  of  power  by  combination  of  means,  being  in  geo- 
metrical proportion  to  the  number  concerned,  an  association  may  be 
able  to  give  an  impulse  not  only  oppressive  to  individuals  but  mis- 
chievous to  the  public  at  large;  and  it  is  the  employment  of  an  engine 
so  powerful  and  dangerous  that  gives  criminality  to  an  act  that  would 
be  perfectly  innocent,  at  least  in  a  legal  view,  when  done  by  an 
individual."  * 

This  difference  between  individual  and  associated  power  may 
be  so  great  in  its  effect  upon  public  and  private  interest  as  to 
cease  to  be  simply  one  of  degree  and  to  reach  the  dignity  of  one 
in  kind.5  Therefore,  an  act  harmless  when  done  by  one  may 
become  a  public  wrong  when  done  by  many  acting  in  concert,  if 
the  result  is  hurtful  to  the  public  or  to  the  individual  against 
whom  the  concerted  action  is  directed.6  When  an  association 
adopts  unlawful  purposes  and  does  unlawful  acts,  the  associa- 
tion itself  becomes  unlawful  and  the  original  good  purpose  of  ' 
its  members  is  not  a  defense.7 

The  manner  in  which  a  restraint  of  trade  is  effected  is  not 
material,  for  the  courts  do  not  hesitate  to  disregard  the  form 

3  United  States  vs  U.  S.  Steel  Corp.,  223  Fed.   55,   154-155    (1915); 
United  States  vs  American  Linseed  Co.  et  al.,  275  Fed.  939,  942    (1921). 
See  also,   United  States  vs  New  England  Fish  Exchange,   258   Fed.   742, 
749    (1919). 

4  Commonwealth  vs  Carlisle,  Brightly   (Penn.)   36,  41;    United  States 
vs  E.  C.  Knight  Co.,  156  U.  S.  1,  35   (1895). 

s  Martell  vs  White,  185  Mass.  255,  256. 

e  Grenada  Lumber  Company  vs  Mississippi,  217  U.  S.  433,  440  (1910)  ; 
Eastern  States  Retail  Lumber  Dealers'  Assn.  vs  United  States,  234  U.  S. 
600,  614  (1914). 

7  United  States  vs  Workingmen's  Amalgamated  Council  of  New  Orleans 
et  al.,  54  Fed.  999,  1000  (1893). 


244  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

if  an  illegal  purpose  or  result  is  shown.8  The  law  is  applied  to 
any  means  used,  whether  "  unlawful  contracts,  trusts,  pooling 
arrangements,  blacklists,  boycotts,  coercion,  threats,  intimida- 
tion, and  whether  these  be  made  in  whole  or  in  part  by  acts, 
words,  or  printed  matter."  9 

The  forms  of  combined  action  amounting  to  restraints  of 
trade  which  the  law  condemns  divide  themselves  into  two 
groups, — voluntary  restraints  and  involuntary  restraints.  Vol- 
untary restraints,  as  the  words  suggest,  are  mutual  restraints 
imposed  by  voluntary  action  of  the  parties.  Involuntary  re- 
straints are  those  imposed  upon  the  competition  of  others  against 
their  will. 

Voluntary  Restraints. — Voluntary  restraints  cover  every 
conceivable  form  of  competition.  They  range  from  agreements 
designed  to  eliminate  entirely  all  competition  to  activities  in- 
tended to  control  certain  forms  of  competition.  It  will  perhaps 
be  more  clear  to  discuss  first  those  activities  designed  to  restrain 
competition  generally,  and  subsequently  to  outline  the  illegal 
restraints  relating  only  to  particular  forms  of  competition. 
^  Trusts. — As  outright  agreements  to  eliminate  competition 
/were  unlawful  even  under  the  common  law,  the  legal  device 
known  as  the  trust  was  resorted  to  in  the  early  eighties  to  ac- 
complish the  same  results.  By  trust  agreements,  stocks  in  com- 
peting corporations  were  turned  over  by  the  stockholders  of 
such  corporations  to  trustees  who  held  for  a  fixed  period  for 
the  benefit  of  such  stockholders.  The  stockholders  usually  re- 
ceived trustee  certificates  entitling  them  to  dividends,  and  the 
trustees  were  given  complete  management  of  the  corporation 
whose  stock  they  held.  In  this  way,  complete  control  of  com- 
petition between  such  corporations  was  secured.  Adopted  orig- 
inally by  the  Standard  Oil  Company  of  Ohio,  this  device  be- 
came the  vehicle  through  which  some  of  the  greatest  combina- 
tions in  American  industrial  history  were  organized.  This 
method  of  restraining  competition  was  held  to  be  unlawful  by 
state  courts  before  the  passage  of  the  Sherman  Law.10  Its 

8  United  States  vs  Whiting  et  al,  212  Fed.  466,  475  (1914). 
*Gompers  vs  Buck  Stove  &  Range  Co.,  221  U.  S.  418,  438  (1911). 
10  People  vs  North  River  Sugar  Refining  Co.,  54  Hun    (N.  Y.)    354 
(1889). 


ILLEGAL  COLLECTIVE  ACTIVITIES  245 

use  by  an  unincorporated  association  was  held  to  be  illegal 
as  destructive  of  competition.11  The  effect  of  these  and  other 
state  decisions  which  went  to  the  extent  not  only  of  hold- 
ing such  organizations  unlawful  as  in  restraint  of  trade,  but 
also  of  ordering  the  forfeiture  of  the  charter  of  a  corporation 
a  party  to  such  a  plan,  quickly  discouraged  the  use  of  this 
method. 

Holding  Companies. — As  some  of  our  states  amended  their 
corporation  laws  to  permit  corporations  created  there  to  hold 
stocks  in  other  corporations,  the  holding  company  quickly  be- 
came a  popular  method  of  attempted  evasion  of  the  anti-trust 
acts.  By  this  method,  the  control  of  the  competing  corporations 
was  placed  not  in  trustees  but  in  a  corporation  which  held  the 
stock  of  the  stockholders  in  the  various  corporations  participat- 
ing in  the  plan.  The  officers  and  directors  of  the  holding  cor- 
poration, of  course,  by  this  method  controlled  completely  the 
competition  of  all  corporations  participating.  The  use  of  this 
device  between  corporations  for  the  purpose  of  suppressing  com- 
petition between  such  corporations,  was  long  ago  held  to  be  a 
violation  of  the  Sherman  Law.12  The  Act  applies  equally  to 
the  purchase  of  stock  of  one  corporation  by  another,  where 
domination  and  control  of  the  industry  and  the  power  to  sup- 
press competition  are  acquired.13  As  already  discussed,  the 
Clayton  Act  adopted  in  1914  prohibited  holding  companies  or  the 
holding  by  one  corporation  of  stock  in  a  competing  corporation, 
where  the  effect  is  to  lessen  substantially  competition  between 
such  corporations.  This  act,  however,  specifically  recognizes  the 
right  of  corporations  to  purchase  stock  solely  for  investment,  or 
to  form  subsidiary  corporations  to  carry  on  their  business  or 
branches  thereof  if  the  holding  of  such  stock  does  not  have  the 
prohibited  effect. 

Merger. — The  actual  merging  of  the  properties  of  competing 
concerns  has  also  been  resorted  to  as  a  means  of  evading  the 
law.  The  Supreme  Court,  however,  has  held  that  any  such  com- 

11  State  vs  Nebraska  Distilling  Co.,  99  Neb.  700   (1890). 

12  Northern  Securities  Co.  vs   United  States,   193  U.  S.   197    (1904); 
Standard  Oil  Co.  vs  United  States,  221  U.  S.  1    (1911).     See  also,  United 
States  vs  Reading  Co.  et  al.,  40  Sup.  Ct.  Rep.  425  (1920). 

is  United  States  vs  Union  Pacific  R.  R.  Co.,  226  U.  S.  61,  85  (1912). 


246  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

bination  of  competing  concerns,  even  though  merged  in  one 
ownership,  where  such  combination  operates  to  the  prejudice  of 
the  public  interest  by  unduly  restricting  competition  or  unduly 
obstructing  the  due  course  of  trade,  is  a  violation  of  the  Act.14 

Division  of  Territory. — A  common  method  of  restricting 
competition  has  been  for  several  competitors  to  enter  into  agree- 
ments whereby  the  territory  within  which  each  member  shall  do 
business  is  fixed,  each  member  usually  being  given  the  exclusive 
right  to  do  business  within  his  particular  territory.  The  effect 
of  such  an  agreement,  if  all  parties  in  the  industry  are  parties 
to  it,  is  to  give  each  manufacturer  a  complete  monopoly  of  the 
trade  in  his  territory,  thus  eliminating  all  forms  of  competition. 
Even  though  all  concerns  in  the  industry  are  not  parties  to  such 
an  arrangement,  if  participated  in  by  enough  concerns  so  that 
it  substantially  lessens  competition  within  the  field  of  their 
competition,  such  an  arrangement  is  unquestionably  unlawful.15 

Classification  of  Trade. — Another  method  designed  to  deny 
to  classes  of  buyers  or  sellers  the  benefits  of  competition  is 
combined  action  to  classify  the  trade  with  which  the  parties  will 
deal.  An  association  of  manufacturers  will  agree  that  its  mem- 
bers will  sell  only  to  wholesalers  or  only  to  retailers,  or  that  its 
members  will  not  sell  to  such  classes  of  customers  as  mail  order 
houses  and  large  industrial  users.  Or  an  association  of  retailers 
will  agree  that  its  members  will  buy  only  from  manufacturers 
who  do  not  sell  to  wholesalers.  While  it  is  lawful  for  the  in- 
dividual trader  to  select  the  party  with  whom  he  will  deal,16 
united  action  by  members  of  a  trade  association  to  accomplish 
purposes  such  as  these,  is  unlawful.17  Such  practices  deprive 
the  party  to  the  restraint  of  his  freedom  to  buy  or  sell  to  any 

i*  United  States  vs  American  Tobacco  Co.,  221  U.  S.  106  (1911).  But 
see  United  States  vs  U.  S.  Steel  Corp.,  40  Sup.  Ct.  Rep.  293  (1920). 

i*Addyaton  Pipe  &  Steel  Co.  vs  United  States,  175  U.  S.  221  (1899)  ; 
United  States  vs  Cowell,  243  Fed.  730,  733  (1917). 

is  United  States  vs  Colgate  &  Co.,  250  U.  S.  300,  307  (1919)  ;  United 
States  vs  Trans- Missouri  Freight  Assn.,  166  U.  S.  290,  320  (1897)  ;  East- 
ern States  Retail  Lumber  Dealers'  Assn.  vs  United  States,  234  U.  S.  600, 
614  (1914). 

17  See  indictment,  United  States  vs  Jones  et  al.  (National  Coal  Asso- 
ciation), Feb.  25,  1921,  pp.  26,  35,  44,  53,  62;  indictment,  United  States 
vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  April  12,  1917,  p.  9. 


ILLEGAL  COLLECTIVE  ACTIVITIES  247 

class  of  trade  and  it  excludes  those  not  parties  to  the  restraint 
from  a  field  of  supply  which  otherwise  would  be  at  least  par- 
tially available  to  them. 

Allotment  of  Customers. — A  method  of  excluding  a  particu- 
lar buyer  from  the  benefits  of  any  competition  whatsoever  is 
the  practice  sometimes  adopted  by  sellers  by  which  a  particular 
customer  is  assigned  to  one  seller,  his  competitors  agreeing  not 
to  do  business  with  such  customer,  or  to  quote  him  only  prices 
higher  than  the  prices  quoted  by  the  concern  to  whom  the  cus- 
tomer is  allotted.  Any  such  agreement  or  understanding,  where 
it  has  any  substantial  effect  upon  the  buyer  by  way  of  enhanc- 
ing the  price  he  must  pay  or  in  creating  difficulties  in  procuring 
goods,  is  beyond  doubt  unlawful.18  Agreements  to  refrain  from 
competing  for  the  patronage  of  the  customers  of  the  parties  to 
the  agreement  is  in  practical  effect  an  unlawful  allotment  of 
customers.19 

Curtailment  of  Production  or  Supply. — A  common  practice 
indulged  in  by  trade  associations  has  been  the  making  of  various 
arrangements  to  curtail  the  supply.  A  combination  of  such  a 
character,  if  it  affects  a  substantial  portion  of  the  supply,  iy 
clearly  opposed  to  public  policy.20  Any  such  arrangement  ob- 
viously completely  suppresses  the  competition  of  a  portion  of 
the  production  which  would  otherwise  enter  the  market.  The 

i*Addyston  Pipe  &  Steel  Co.  vs  United  States,  175  U.  S.  211,  241 
(1899)  ;  United  States  vs  American  Seating  Co.  (Prudential  Club)  decree, 
Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  146;  United  States 
vs  Alphons  Custodis  Chimney  Construction  Co.  et  al.  (Chimney  Builders' 
Assn.),  Ind.,  Dec.  12,  1919,  p.  4;  see  also,  U.  S.  Tobacco  Co.  vs  American 
Tobacco  Co.,  163  Fed.  701,  and  decree  in  this  case,  Decrees  and  Judgments 
in  Federal  Anti-Trust  Cases,  p.  188;  see  indictment,  United  States  vs 
W.  Hamilton  Smith  et  al.  (Coal  Merchants'  Board  of  Trade),  March  3, 
1921,  p.  8. 

is  See  indictment,  United  States  vs  Mead  et  al.  (News  Print  Mfrs'. 
A'ssn.),  April  12,  1917,  p.  9. 

20  Cravens  vs  Carter  Crume  Co.,  92  Fed.  479,  485  (1899);  Gibbs  vs 
McNeeley,  118  Fed.  120,  127  (1902);  Wheeler  Stenzel  Co.  vs  National 
Window  Glass  Jobbers'  Assn.,  152  Fed.  864,  871  (1907);  Coal  Dealers' 
Assn.  vs  United  Stages,  Decrees  and  Judgments  in  Federal  Anti-Trust 
Cases,  p.  77;  United  States  vs  Mead  et  al.,  ibid,  p.  639;  United  States  vs 
American  Thread  Co.,  ibid.,  p.  453;  United  States  vs  Mead  et  al.,  indict- 
ment April  12,  1917,  p.  9. 


248  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

enhancement  of  prices  to  the  public  is  an  inevitable  result.  Any 
method  by  which  such  curtailment  is  procured  is  unlawful. 
Thus,  the  restriction  of  production  by  the  use  of  a  common 
selling  agency ; 21  or  by  agreement  between  employers  and  their 
workmen ; 22  or  by  fomenting  and  financing  strikes  among  em- 
ployees ; 23  or  by  the  destruction  of  materials  already  pro- 
duced ; 24  or  the  securing  of  priority  orders  from  governmental 
agencies  whereby  the  production  is  diverted  from  its  natural 
territory  thereby  creating  an  artificial  shortage ; 25  are  all  ob- 
jectionable. 

Usually  supplementary,  though  often  employed  separately, 
are  many  methods  and  practices  designed  to  restrict  or  elimi- 
nate some  particular  form  of  competition. 

Restrictions  on  Price  Competition. — As  price  is  usually  a 
more  important  consideration  to  the  bu^er  and  seller  than  serv- 
ice, terms,  or  sometimes  even  quality,  it  is  natural  that  the  most 
common  form  of  restraint  of  trade  is  that  designed  to  restrict 
competition  in  price. 

Agreements  Fixing  Price. — From  time  immemorial  sellers  in 
the  market  have  entered  into  agreements  and  understandings  as 
to  the  price  of  their  products.  Long  before  the  adoption  of  the 
Sherman  Law,  such  agreements  were  held  unlawful.  Such 
agreements  are  of  course  unlawful  under  the  Sherman  Law.26 
It  is  difficult  to  conceive  of  any  agreement  among  any  substan- 

21  O'Halloran  vs  American  Sea  Green  Slate  Co.  et  al.,  207  Fed.   187, 
188   (1913)  ;   United  States  vs  General  Paper  Co.,  Decrees  and  Judgments, 
Federal  Anti-Trust  Cases,  p.  77. 

22  United  States  vs  Jones  et  al.,  indictment,  Feb.  25,  1921. 
23/Md.,  p.  24. 

24  United  States  vs  American  Coal  Products  Co.,  Decrees  and  Judg- 
ments, Federal  Anti-Trust  Cases,  p.  464. 

2>5  United  States  vs  Jones  et  al.,  indictment  Feb.  25,  1921. 

26  Thomsen  vs  Union  Castle  Mail  S.  S.  Co.  et  al.,  166  Fed.  251,  253 
(1908);  United  States  vs  Jellico  Mountain  Coal  &  Coke  Co.  et  al.,  46 
Fed.  432,  434  (1891);  Loder  vs  Jayne,  142  Fed.  1010,  1014  (1906);  in- 
dictment, United  States  vs  M.  Piowaty  &  Sons  et  al.  (National  Onion 
Assn.,)  May  24,  1917,  p.  20;  indictment,  United  States  vs  Jensen  Creamery 
Co.  et  al.,  Feb.  24,  1917,  p.  19;  United  States  vs  Alphons  Custodis  Chimney 
Construction  Co.  et  al.  (Chimney  Builders'  Assn.),  Dec.  12,  1919,  p.  4; 
indictment,  United  States  vs  Chicago  Mosaic  &  Tiling  Co.  et  al.  (Chicago 
Mantel  &  Tile  Contractors'  Assn.),  May  5,  1917,  p.  10. 

X 


ILLEGAL  COLLECTIVE  ACTIVITIES  249 

tial  number  of  sellers  arbitrarily  fixing  prices  which  is  not  a  vio- 
lation of  the  law.  Whether  or  not  the  price  fixed  by  such  an 
agreement  or  combination  is  reasonable  is  wholly  immaterial.27 
The  courts  could  not  base  their  decision  as  to  the  reasonableness 
of  any  such  restraint  on  such  a  basis,  as  they  would  thereby 
develop  a  judicial  system  of  price  fixing.  In  any  price-fixing 
agreement,  the  restraint  on  price  competition  is  complete  and 
therefore  unlawful.  This  does  not,  however,  mean  that  an 
agreement  may  not  be  entered  into  limiting  the  period  of  com- 
petition in  price  to  a  reasonable  number  of  hours  constituting  a 
reasonable  business  day.28  The  fact  that  an  agreement  affects 
prices  does  not  of  itself  make  it  necessarily  unlawful.29 

Agreements  Affecting  Price. — In  an  effort  to  avoid  the  ap- 
pearance of  price  control,  various  devices  designed  to  increase 
the  general  level  of  prices  have  been  utilized,  the  legality  of 
which  is  very  questionable.  It  would  appear  that  any  agree- 
ment or  arrangement  which  directly  affects  only  a  part  of  the 
price,  if  it  enhances  or  affects  the  general  level  of  prices  is 
against  public  policy .3d  An  agreement  fixing  margins  of  profit 
can  be  nearly  as  effective  in  stifling  competition  in  price  as  a 
direct  price-fixing  agreement.31  An  understanding  establishing 
a  basis  of  uniform  costs,  when  as  a  matter  of  fact  the  actual 
costs  of  the  individual  parties  to  the  agreement  vary,  is  clearly 
prejudicial  in  its  effect  upon  the  public  and  consequently  against 
public  policy.32  A  conspiracy  or  agreement  among  the  members 
of  an  association  to  refrain  from  selling  at  prices  decidedly  be- 
low prevailing  prices  is  against  public  policy.33  Any  under- 

27  United  States  vs  Union  Pacific  R.  R.  Co.,  226  U.  S.  61,  88   (1912) ; 
C.  &  0.  Fuel  Co.  vs  United  States,  115  Fed.  610,  623  (1902). 

28  Board  of  Trade  of  Chicago  vs  United  States,  246  U.  S.  231   (1917). 

29  United  States  vs  Whiting  et  al.,  212  Fed.  474  (1914) 
zoAddyston  Pipe  &  Steel  Co.  vs  United  States,  175  U.   S.  211,  237. 
si  See  indictment,   United  States  vs  Alphons  Custodis  Chimney  Con- 
struction Co.   (Chimney  Builders'  Assn.),  Dec.  12,  1919,  p.  5. 

32  Consent  decree,  United  States  vs  Kluge  et  al.  ( Woven  Label  Mf rs.' 
Assn.),  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  633;  in- 
dictment, United  States  vs  Jones  et  al.  (National  Coal  Assn.),  Feb.  25, 
1921,  pp.  21,  30,  39,  48,  57. 

ss  Indictment,  United  States  vs  W.  Hamilton  Smith  et  al.  (Coal  Mer- 
chants' Board  of  Trade),  March  3,  1921,  p.  6. 


250  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

standing  between  trade  association  members,  or  between  them 
and  manufacturers,  to  maintain  the  resale  prices  fixed  by  manu- 
facturers on  their  own  commodity,  is  unlawful.34 

The  action  of  a  trade  association  in  transferring  orders  or 
contracts  to  new  concerns  in  the  industry  on  condition  that  they 
should  not  compete,  thereby  maintaining  the  existing  price 
level,  is  objectionable.35 

Fictitious  Bids  or  Sales. — Several  associations  are  alleged  to 
have  engaged  in  fictitious  bids  or  sales,  variously  designated  as 
"assisting"  or  "straw  bids"  or  "washed  sales,"  as  a  means  of 
deceiving  parties  as  to  the  price  at  which  their  commodity  is 
being  sold  and  effecting  an  artificial  enhancement  or  depression 
of  price.  Such  agreements  have  been  enjoined  as  against  public 
policy.36 

False  Statements  Designed  to  Affect  Prices. — In  two  recent 
indictments,  the  government  alleges  as  a  violation  of  the  law 
the  action  of  trade  associations  in  making  alleged  false  state- 
ments as  to  shortages  of  supply  or  increased  costs.37  Such  con- 
certed action  by  competitors  designed  to  deceive  the  public  and 
create  panic  markets,  thus  enhancing  prices,  may  violate  the  law, 
particularly  if  accompanied  by  other  acts  designed  to  restrict 
competition. 

Pools. — For  many  years  the  elimination  of  price  competition 
has  been  sought  through  varying  pooling  devices  by  trade  asso- 


34  Dr.  Miles  Medical  Co.  vs  John  D.  Parks  &  Sons  Co.,  220  U.  S.  373 
(1911);  Straus  vs  American  Publishers'  Assn.,  231  U.  S.  222  (1913); 
United  States  vs  Schraeder's  Son,  Inc.,  252  U.  S.  85  (1920).  Such  agree- 
ments or  cooperative  arrangements  also  violate  the  Federal  Trade  Commis- 
sion Act,  Federal  Trade  Commission  vs  Beech-Nut  Packing  Co.,  42  Sup. 
Court  Rep.,  150  (1922). 

ss  United  States  vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  indictment 
April  12,  1917,  p.  9. 

36  United  States  vs  American  Seating  Co.   et  al.    (Prudential  Club), 
Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  146;  United  States 
vs  Chicago  Butter  &  Egg  Board,  ibid.,  p.  261 ;  United  States  vs  Elgin  Board 
of  Trade,  ibid.,  p.  402;   see  also  indictment,  United  States  vs  Jones  et  al. 
(National  Coal  Assn.),  Feb.  25,  1921,  pp.  26,  35,  44,  53,  62. 

37  United  States  vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  indictment 
April  12,  1917,  p.  9;  United  States  vs  Jones  et  al.  (National  Coal  Assn.), 
indictment  Feb.  25,  1921,  pp.  27,  36,  45,  54,  62. 


ILLEGAL  COLLECTIVE  ACTIVITIES  251 

ciations.  Eeceipts,  or  a  portion  of  receipts,  or  bonuses  paid  for 
the  allotment  of  customers  to  the  individual  manufacturers  were 
paid  into  a  common  pool  and  divided  at  a  subsequent  date, 
usually  on  a  basis  of  the  relative  production  of  the  parties  to  the 
pool  at  the  time  the  agreement  was  made.  Such  agreements 
were  held  unlawful  at  the  common  law  even  before  the  passage 
of  the  Sherman  Act.38  The  competitive  system  of  industry  com- 
pels traders  out  of  self-interest  to  offer  price  inducements  to  at- 
tract a  larger  volume  of  trade,  but  under  a  pooling  agreement 
a  concern  assured  of  all  its  share  of  the  entire  profits  of  the 
industry,  has  no  incentive  to  compete  in  price,  and  the  tendency 
of  such  agreements  is,  therefore,  not  only  to  restrict  competi- 
tion but  to  destroy  it.39 

Open  Price  Associations. — During  recent  years  a  large  num- 
ber of  associations  have  collected,  and  secretly  distributed 
among  their  members,  data  showing  the  current  prices  of  their 
members.  In  most  instances  such  prices  have  been  prices  on 
transactions  just  completed;  in  other  instances  the  prevailing 
quotations  have  been  distributed.  So  long  as  the  price  informa- 
tion on  past  transactions  is  distributed,  without  any  recommen- 
dations  by  the  association  officials,  such  action  is  probably  law- 
ful.40 The  Attorney  General  of  the  United  States  does  not  deem 
such  an  activity  as  unlawful  unless  its  purpose  or  effect  is  to 
curtail  production,  enhance  prices,  or  suppress  competition.41 
But  when  such  an  activity  goes  beyond  the  mere  interchange  of 
facts,  and  includes  frequent  meetings,  the  analysis  of  such  facts, 
and  recommendations  by  association  officials,  the  interchange  of 
opinions  between  members  as  to  the  future  markets  and  similar 

as  Emery  et  al.  vs  Ohio  Candle  Co.  (Candle  Mfrs'.  Assn.),  47  Ohio 
State  320  (1890)  ;  Stanton  vs  Allen,  89  Ky.  375  (1889). 

39  United  States  vs  Trans- Missouri  Freight  Assn.,  58  Fed.  58,  65,  66 
(1893);    Addyston  Pipe  &   Steel   Co.   vs    United   States,    175    U.    S.    211 
(1899)  ;  Continental  Wall  Paper  Co.  vs  Louis  Voight  &  Son  Co.,  212  U.  S. 
227   ( 1907 )  ;  Lee  Line  Steamers  vs  Memphis  H.  &  R.  Packet  Co.,  277  Fed. 
5,  8  (1922)  ;  see  decree,  United  States  vs  Great  Lakes  Towing  Co.,  Decrees 
and  Judgments  in  Federal  Anti-Trust  Cases,  p.  255. 

40  See   United  States  vs  American  Linseed  Co.   et  al.,  275   Fed.   939 
(1921). 

41  Letter,  H.  M.  Daugherty,  Attorney  General,  to  Herbert  Hoover,  Sec- 
retary of  Commerce,  Feb.  8,  1922.     See  Appendix  J. 


252  TRADE  ASSOCIATION  ACTIVITIES  AND  TEE  LAW 

acts,  it  is  unlawful.42  For  a  fuller  discussion  of  this  subject, 
see  Chapter  IV,  p.  58.  In  several  recent  civil  and  criminal 
proceedings  of  the  government  the  employment  of  open  price 
plans  as  part  of  a  general  scheme  to  restrain  trade  has  been 
alleged.43  The  instant  the  interchange  of  price  information  goes 
beyond  its  proper  function  of  furnishing  information  and  is 
employed  as  the  means  for  making  effective  even  a  tacit  agree- 
ment to  enhance  prices,  it  becomes  colored  with  illegality.  In 
the  present  state  of  the  law  the  interchange  of  price  data  by 
association  members  is  dangerous. 

Common  Selling  Agency. — Another  old  scheme  to  control 
price  and  competition  was  the  creation  of  common  marketing 
organizations  for  a  group  of  sellers.  By  distributing  their  prod- 
ucts solely  through  such  an  agency,  competitors  owning  a  pro 
rata  interest  in  the  common  agency  or  marketing  company  could 
as  effectively  control  competition  as  by  direct  agreement.,  In 
a  number  of  early  common  law  cases,  the  courts  held  such  ar- 
rangements to  be  against  public  policy  and  in  restraint  of 
trade.44 

Under  the  Sherman  Law,  a  common  selling  agency  or  com- 
mon distributing  organization  operated  by  a  trade  association 
or  other  group  of  competitors,  which  is  given  the  power  to  fix 
prices  or  control  production  of  the  parties  employing  or  inter- 
ested in  it,  and  which  has  the  effect  of  restricting  competition  in 
interstate  commerce  in  any  substantial  degree,  is  unlawful.45 
The  test  of  legality  centers  about  the  power  of  any  such  organi- 

42  American  Column  and  Lumber  Co.  et  al.  vs  United  States,  42  Sup. 
Ct.  Rep.  114   (1921). 

43  Indictment,   United  States  vs  Alphons  Custodis  Chimney  Construc- 
tion Co.  et  al.,  Dec.  12,  1919,  pp.  5,  6;  indictment,  United  States  vs  Ameri- 
can Terra  Gotta  &   Ceramic   Co.   et  al.,   Sept.   28,    1921,   p.    12;    petition, 
United  States  vs  Cement  Mfrs'.  Protective  Assn.,  June,  1921,  p.  22. 

44  Morris  Run  Coal  Co.  vs  Barclay  Coal  Co.,  68  Pa.  St.  173    (1871); 
Slaughter  vs  Thacker  Coal  &  Coke  Co.,  55  W.  Va.  642  (1904)  ;  Central  Ohio 
Salt  Co.  vs  Guthrie,  35  Ohio  St.  666   (1880). 

450'Halloran  vs  Sea  Green  Slate  Co.,  207  Fed.  187,  190  (1913); 
United  States  vs  Chesapeake  &  Ohio  Fuel  Co.  (C.  &  0.  Coal  Association), 
105  Fed.  93,  104  (1900);  decree,  United  States  vs  General  Paper  Co., 
Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  77;  decree,  United 
States  vs  American  Tobacco  Co.,  ibid.,  p.  189;  decree,  United  States  vs 


ILLEGAL  COLLECTIVE  ACTIVITIES  253 

zation  to  exercise  a  large  influence  on  substantial  markets  in 
regulating  supply  and  price.48  If  the  price  or  supply  of  the 
product  is  or  may  be  affected  to  a  substantial  extent  to  the  dis- 
advantage of  producers  or  purchasers,  thereby  operating  in  a 
material  degree  to  the  injury  of  the  public,  the  agency  by  which 
such  result  is  secured  is  unlawful.47 

Patents. — Early  in  the  administration  of  the  Sherman  Law, 
efforts  were  made  to  control  prices  through  the  medium  ci 
patents.  But  the  grant  of  a  patent  does  not  "give  the  right 
to  sell  indulgences  to  violate  the  law."48  The  only  effect  of  a 
patent  is  to  restrain  others  from  manufacturing,  selling  or  using 
what  the  patentee  has  invented.49  The  moment,  therefore,  the 
inventor  puts  patented  articles  into  the  channels  of  commerce, 
he  subjects  such  property  to  the  laws  which  control  commercial 
transactions.50  The  acquirement  of  patents,  so  long  as  they  are 
not  competitive  and  such  acquirement  does  not  in  any  practical 
or  large  sense  remove  competition,  is  not  a  restraint  of  trade.51 
"When  a  new  invention  threatens  the  destruction  of  a  concern 
working  with  antiquated  processes  or  machinery,  it  is  probably 
not  unlawful  to  acquire  the  patent  covering  it  as  a  means  of 
self-protection.52  The  acquirement,  however,  of  basic  patents 
directly  competitive  for  the  purpose  or  with  the  effect  of  sub- 
stantially lessening  competition  or  acquiring  a  monopoly,  would 
clearly  violate  the  law.  To  legalize  such  action  merely  because 
each  of  the  original  patentees  had  a  monopoly,  would  be  to  per- 

DuPont  de  Nemours  Co.,  Hid.,  p.  204;  decree,  United  States  vs  Union 
Pacific  R.  R.  Co.,  iUd.,  p.  215;  see  also,  United  States  vs  International 
Harvester  Co.,  214  Fed.  987  (1914)  ;  indictment,  United  States  vs  Algomct 
Coal  &  Coke  Co.  et  al.,  March  5,  1917,  p.  6. 

46  United  States  vs  Chesapeake  &  Ohio  Fuel  Co.   ( C.  &  O.  Fuel  Asso- 
ciation), 105  Fed.  93,  104   (1900). 

47  United  States  vs  Whiting,  212  Fed.  466,  475   (1914)  ;   United  States 
vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  indictment  April  12,  1917. 

48  United  States  vs  Standard  Sanitary  Mfg.  Co.    ( Sanitary  Enameled 
Ware  Assn.),  191  Fed.  172,  190  (1911). 

49  Motion  Picture  Co.  vs  Universal  Film  Co.,  243  U.  S.  502,  510  (1917)  ; 
Paper  Bag  Patent  Case,  210  U.  S.  424,  425  (1908) . 

so  Missouri  vs  Bell  Telephone  Co.,  23  Fed.  539,  540   (1885). 
51  United  States  vs  United  Shoe  Machinery  Corp.,  247  U.  S.  32,  44,  54 
(1918). 

62  Ibid.,  p.  53. 


254  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

vert  the  patent  laws.53  The  patent  laws  do  not  confer  any  right 
to  make,  vend  and  use  the  subject  matter  of  an  invention,  for 
that  is  a  natural  right  already  possessed  by  the  inventor;  their 
effect  is  merely  to  take  away  for  the  period  of  the  patent  from 
all  others  than  the  patentee  the  right  to  make,  vend  and  use 
the  patented  article,  and  to  give  to  the  patentee  the  aid  of  the 
law  in  enforcing  this  prohibition  on  others.54  The  patentee  thus 
has  a  legal  monopoly  so  far  only  as  the  patented  article  is  con- 
cerned. The  right  to  exclude  others  from  making  or  selling  the 
article  does  not  enlarge  his  natural  right  to  make,  sell  or  use, 
which  the  producer  or  owner  of  any  article  has,  and  when  he 
sells  the  article  he  cannot  impose  illegal  restrictions  of  any  kind 
on  its  use  or  fix  the  price  at  which  it  shall  be  resold.55  A  re- 
straint which  is  co-extensive  only  with  the  field  of  exclusive  con- 
trol or  monopoly  granted  to  the  patentee  is  lawful.56  But  if  any 
contract  entered  into  by  him  is  beyond  the  scope  of  the  field  of 
trade  belonging  to  him  by  reason  of  his  patent  right,  and  is 
designed  to  unfairly  restrain  the  rights  of  others  in  a  field  out- 
side the  scope  of  the  patent  or  to  control  the  competition  of 
others  in  this  outside  field,  by  mutual  agreement  through  the 
guise  of  a  patent,  it  runs  counter  to  the  law.57  But  the  acquire- 
ment of  patents  for  improvements  on  the  original  patented  ar- 
ticle or  the  pooling  of  ownership  by  the  original  patentee  and 
the  owners  of  patents  covering  such  improvements,  would  not 
be  a  violation  of  law,  for  such  a  relationship  would  have  as  its 
purpose  a  normal  and  proper  protection  of  the  patent  rights 
rather  than  a  restraint  upon  competition.58  There  is  no  doubt, 
too,  that  an  owner  of  the  patent  can  assign  it  or  sell  the  right 
to  manufacture  and  sell  the  articles  patented  upon  the  condition 
that  the  assignee  or  licensee  shall  charge  a  certain  price  for  the 

53  United  States  vs  Motion  Picture  Patent  Co.  et  al.,  225  Fed.  800, 
810  (1915)  ;  National  Harrow  Co.  vs  Bench,  76  Fed.  667,  670  (1896). 

s*  United  States  vs  Motion  Picture  Co.,  225  Fed.  800,  804  (1915). 

55  Bauer  &  Cie.  vs  O'Donnell,  229  U.  S.  1  (1913);  Stratus  et  al.  vs 
Victor  Talking  Machine  Co.,  243  U.  S.  490  (1917). 

stBement  vs  Harrow  Co.,  186  U.  S.  70  (1902) ;  United  States  vs  Stand- 
ard Sanitary  Co.,  226  U.  S.  20  (1912). 

57  United  States  vs  Motion  Picture  Co.,  225  Fed.  800,  806   (1915). 

58  United  States  vs  Motion  Picture  Patent   Co.,   225   Fed.    800,   810 
(1915). 


ILLEGAL  COLLECTIVE  ACTIVITIES  255 

article.59  But  the  instant  such  right  is  employed  not  to  protect 
the  use  of  a  patent  and  the  individual  monopoly  accorded  the 
patentee  by  law,  but  rather  to  control  competition  and  price 
through  the  subterfuge  of  license  agreements,  the  law  is  vio- 
lated.60 The  Supreme  Court  emphatically  declares  that  a 
patent  cannot  confer  immunity  or  the  law  be  evaded  by  any 
other  disguise  or  subterfuge  of  form.  Agreements  among  inde- 
pendent owners  of  patents  to  fix  the  price  of  their  patented 
articles  would  unquestionably  be  unlawful,  for  such  a  restraint 
arises  from  the  combination  rather  than  from  the  exercise  of 
rights  granted  by  letters  patent.61 

Copyrights. — The  monopoly  granted  by  a  copyright  is  no 
more  extensive  than  the  monopoly  secured  under  the  patent  law, 
and  consequently  the  principles  above  stated  in  general  also  ap- 
ply to  copyrights.  The  copyright  statutes  do  not  in  any  way 
authorize  agreements  in  restraint  of  trade  or  any  other  acts  in 
violation  of  the  anti-trust  laws.62 

Corner. — A  corner  consists  in  acquiring  control  of  all  or  a 
dominant  portion  of  a  commodity  with  the  purpose  of  artificially 
enhancing  prices,  one  of  its  features  being  the  purchase  for 
future  delivery,  coupled  with  a  withholding  from  sale  for  a  lim- 
ited time.  The  term  is  broad  enough  to  include  modified  modes 
of  obtaining  substantially  the  same  end.63  Parties  thus  control- 


vs  National  Harrow  Co.,  186  U.  S.  70,  93   (1902). 

*o  National  Harrow  Co.  vs  Hench,  76  Fed.  667,  669;  Standard  Sani- 
tary Mfg.  Co.  vs  United  States  (Assn.  of  Sanitary  Enameled  Ware  Mfrs.), 
226  U.  S.  20,  48  (1912)  ;  National  Harrow  Co.  vs  Quick,  67  Fed.  130,  131 
(1895).  See  also  United  States  vs  Krentzler  Arnold  Hinge  Last  Co.  et  al 
(The  Gary  Club),  consent  decree,  Decrees  and  Judgments  in  Federal  Anti- 
Trust  Cases,  p.  410;  United  States  vs  New  Departure  Mfg.  Co.  et  al.  (Assn. 
of  Coaster  Brake  Licensees),  consent  decree,  ibid.,  p.  475. 

tiBlount  Mfg.  Co.  vs  Yale  &  Towne  Mfg.  Co.,  176  Fed.  555,  557,  562 
(1909)  ;  National  Harrow  Co.  vs  Hench,  83  Fed.  36,  38  (1897)  ;  Bobbs  Mer- 
rill Co.  vs  Straus,  139  Fed.  155,  192  (1905)  ;  United  States  vs  Dische  et  al. 
(Auto  Bumper  Assn.),  consent  decree,  Decrees  and  Judgments  in  Federal 
Anti-Trust  Cases,  p.  647. 

62  Straus  vs  American  Publishers'  Assn.,  231  U.  S.  222,  234    (1913); 
Mines   vs   Scribner   et   al.    (American    Publishers'    Assn.),    147    Fed.    927 
(1906). 

63  United  States  vs  Patten,  226  U.  S.  525,  537  (1913). 


256  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

ling  the  supply  can  make  contracts  with  others  for  the  delivery 
of  more  than  the  available  supply,  and  by  holding  both  the 
supply  and  such  contracts  in  their  possession  until  the  demand 
has  overrun  the  supply,  can  advance  the  price  abnormally.  A 
corner  is  a  forbidden  restraint  of  trade,  for  while  it  may  tempo- 
rarily stimulate  competition,  it  also  thwarts  the  usual  operation 
of  the  laws  of  supply  and  demand,  withdraws  the  commodity 
from  the  normal  currents  of  trade,  enhances  the  price  artifi- 
cially, hampers  users  and  consumers  in  satisfying  their  needs, 
and  produces  substantially  the  same  evils  as  does  any  combina- 
tion substantially  suppressing  competition.64 

Monopoly. — The  prohibition  against  monopoly  or  attempts 
to  create  monopolies  has  already  been  discussed.  While  the  re- 
cent decisions  of  the  Supreme  Court  have  raised  a  doubt  as  to 
whether  or  not  a  monopoly  acquired  by  a  single  concern  by  nor- 
mal and  lawful  methods  is  prohibited  by  law,  there  is  no  question 
that  a  monopoly  of  a  product  procured  through  joint  action  is  un- 
lawful. Action  by  a  trade  association  which  is  designed  to  or 
which  has  the  effect  of  excluding  others  from  the  trade  so  as  to 
confine  the  trade  to  the  members  of  such  association,  is  unlawful.65 
This  does  not  of  course  mean  that  a  trade  association  may  not 
with  perfect  propriety  have  within  its  membership  all  the  con- 
cerns in  the  industry,  but  it  must  take  no  action  designed  to 
exclude  or  prevent  any  person  from  engaging  in  the  business  if 
he  so  desires,  whether  or  not  he  cares  to  be  a  member  of  the 
association. 

Generally  buying  has  been  more  nearly  on  a  competitive 
basis  than  selling.  Combinations  of  buyers  have  not  so  much 
-7  directed  their  effort  at  control  of  price  or  other  voluntary  re- 
straints as  at  the  control  of  the  channels  through  which  the  dis- 
tribution of  the  commodities  should  move.  While  the  fact  that 
buyers'  combinations  may  tend  to  lower  prices  to  the  public, 
may  be  a  factor  not  present  in  selling  combinations,  nevertheless 
the  law  in  its  effort  to  maintain  the  natural  operation  of  supply 


States  vs  Patten,  226  U.  S.  525,  542   (1913). 

vs  Tile,  Mantel  &  Grate  Assn.  of  California  et  al.,  106  Fed. 
38,  46  (1900)  ;  United  States  vs  Jellico  Mountain  Coal  &  Coke  Co.  et  al. 
(Nashville  Coal  Exchange),  46  Fed.  432,  434  (1891). 


ILLEGAL  COLLECTIVE  ACTIVITIES  257 

and  demand  frowns  on  any  substantial  price  control  by  buyers.68 
Cooperative  Buying  Organizations. — At  common  law,  it  was 
early  held  that  a  combination  of  buyers  giving  them  a  control 
of  the  market,  thus  enabling  them  to  paralyze  the  production, 
limit  the  supply  and  enhance  the  price  to  the  public  if  they  so 
desired,  was  against  public  policy,  even  though  the  alleged 
purpose  was  to  reduce  the  price.67  The  common  law  did  not  ob- 
ject to  combinations  of  purchasers  otherwise  unable  to  buy 
whose  united  entry  into  the  market  would  enhance  competition, 
but  only  to  those  combinations  where  the  agreement  not  to  bid  ^_ 
against  each  other  was  the  foundation  for  united  action.68 

The  Sherman  Law  decisions  have  upheld  the  right  of  the 
sellers  to  have  the  benefit  of  competition  among  buyers  just  as 
buyers  demand  such  competition  among  sellers.  While  it  is  not 
within  the  power  of  the  courts  to  compel  buyers  to  compete, 
they  can  be  forbidden  to  make  agreements  not  to  compete.69 
Thus  agreements  of  buyers  fixing  the  price  at  which  they  shall  « — 
buy  are  unlawful,  even  in  the  absence  of  any  unlawful  intent, 
if  far-reaching  enough  to  substantially  alter  the  general  condi- 
tions under  which  persons  engaged  in  the  particular  trade  in 
such  territory  do  business,  that  is,  if  they  are  of  such  character 
that  their  effect  is  or  may  be  to  affect  the  price  or  supply  to  a 
substantial  extent  or  to  operate  otherwise  to  the  disadvantage  of 
sellers  and  of  the  public.  The  substantiality  of  the  effect  will  be 
determined  by  the  facts  of  each  situation,  for  a  limited  market 
or  for  one  nicely  balanced  as  between  buyers  and  sellers,  might 
be  greatly  disrupted  by  an  agreement  between  only  a  few  buyers 
while  a  broader  market  might  not  be  unfairly  affected  by  a  com- 
bination of  a  considerable  number  of  persons  involving  a  large 
amount  of  goods.70  If  the  effect  is  illegal,  the  means  of  accom- 
plishment is  immaterial,  whether  through  direct  agreement, 

ee  United  States  vs  Whiting,  212  Fed.  466  (1914);  Hood  Rubber  Co. 
vs  United  States  Rubber  Co.,  229  Fed.  583,  588,  589  (1916). 

67  People  vs  Milk  Exchange,  145  N.  Y.  267  (1895)  ;  Chapin  vs  Brown 
Bros.,  83  Iowa  156  (1891). 

es  National  Bank  of  the  Metropolis  vs  Sprague  et  al.,  20  N.  J.  Equity 
159  (1869). 

«»  Swift  &  Co.  vs  United  States,  196  U.  S.  375,  399   (1905). 

™  U.  8.  vs  Whiting,  212  Fed.  466,  476  (1914). 


258  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

joint  agent,  or  what  not.  In  the  American  Tobacco  Company 
decree,  each  of  the  fourteen  corporations  among  which,  by  the 
decree,  the  business  of  the  parent  company  was  divided,  was 
enjoined  for  a  period  of  five  years  from  employing  a  common 
agent  for  the  purchase  of  leaf  tobacco  or  other  raw  material.71 
The  mere  fact  that  a  price  fixed  by  agreement  of  buyers  is  not 
unreasonable  is,  of  course,  no  defense.72 

Agreements  to  Refrain  from  Bidding. — Agreements  to  re- 
frain from  making  bids  are  likewise  unlawful.  In  the  meat 
packer  case,  the  respondents  were  enjoined  from  directing  or 
requiring  their  respective  agents  to  refrain  from  bidding 
against  each  other  in  the  purchase  of  live  stock.73  The  action 
of  the  members  of  a  fish  exchange  in  splitting  trips,  that  is,  one 
member  purchasing  a  trip  of  fish  at  auction  to  be  divided  with 
other  dealers  refraining  from  bidding,  has  been  held  to  be  un- 
lawful unless  there  was  no  agreement  to  refrain  from  bidding 
and  the  splitting  of  the  purchase  had  been  arranged  for  after 
the  purchase  had  been  made.74  Criminal  proceedings  have  been 
successfully  prosecuted  against  the  members  of  a  trade  associa- 
tion for  the  fixing  of  a  price  at  which  they  would  buy  and  agree- 
ing to  refrain  from  purchasing  except  at  or  below  such  price.75 
In  the  Onion  Association  case,  one  of  the  allegations  in  the  in- 
dictment was  also  that  the  association  divided  producing  regions 
into  separate  territories,  assigning  a  territory  to  certain  mem- 
bers, other  members  refraining  from  bidding  in  such  territory.78 

Restraints  on  Competition  in  Terms. — Generally  speaking, 
competition  in  terms  is  not  of  such  great  public  importance  as 
competition  in  price.  The  government  has  in  no  case  instituted 
action  against  a  trade  association  where  its  activities  were  con- 
fined solely  to  fixing  uniform  terms,  but  in  many  cases  the  fixing 

71  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  189. 

72  United  States  vs  Whiting,  212  Fed.  466,  477  (1914). 

73  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  64. 

74  United  States  vs  New  England  Fish  Exchange,  258  Fed.  732,  750 
(1919). 

75  United  States  vs  M.  Piowaty  d  Son  et  al.   (National  Onion  Assn.), 
May  24,  1917,  p.  13;  see  also  consent  decree,  United  States  vs  Elgin  Board 
of  Trade,  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  402. 

76  United  States  vs  M.  Piowaty  d  Son  et  al.   (National  Onion  Assn.), 
indictment  May  24,  1917,  p.  12. 

• 


ILLEGAL  COLLECTIVE  ACTIVITIES  259 

of  uniform  terms  has  been  enjoined  as  a  violation  of  the  law  in 
connection  with  other  practices  amounting  to  a  general  scheme 
to  restrain  trade.  In  the  American  Tobacco  Company  case  and 
in  the  Powder  Case,  the  defendants  were  enjoined  from  making 
agreements,  express  or  implied,  relative  to  the  terms  of  purchase 
of  products  dealt  in  by  them  which  would  have  the  effect  of 
restraining  trade.77  In  several  criminal  proceedings  against 
trade  association  members'  united  action  with  reference  to  the 
fixing  of  rates  of  interest  on  open  accounts,  the  post  dating  of 
bills,  the  methods  of  handling  telephone  and  telegraph  charges, 
have  been  alleged  as  means  whereby  the  alleged  violation  of  the 
law  was  accomplished.78  There  can  be  no  doubt  that  competi- 
tion in  terms  may  become  a  very  important  form  of  competition. 
The  Commissioner  of  Corporations,  in  a  report  to  Congress,  al- 
leged that  the  use  of  long  credits  by  the  International  Harvester 
Company  was  an  important  factor  enabling  that  company  to 
wrest  trade  from  its  rivals.79  Terms  to-day  in  Europe  are  if 
anything  a  greater  consideration  than  price.  In  South  America 
long-term  credits  are  essential  to  the  sale  of  the  goods.  In  an 
industry  where  by  the  nature  of  the  commodity  a  standard  price 
has  been  established,  competition  in  terms  may  be  substantial. 
In  industries  to-day  where  the  terms  of  credit,  discounts  and  so 
on  are  of  substantial  importance,  action  by  a  trade  association 
representing  a  substantial  portion  of  the  industry  fixing  such 
terms  on  a  uniform  basis,  thereby  eliminating  this  form  of  com- 

77  United  States  vs  American  Tobacco  Co.,  Decrees  and  Judgments  in 
Federal  Anti-Trust  Cases,  p.   188;    United  States  vs  DuPont  de  Nemours 
&  Co.,  ibid.,  p.  202;  in  the  following  consent  decrees  in  association  cases, 
the  fixing  by  mutual  agreement  of  the  terms  and  conditions  of  sale  was 
enjoined:  United  States  vs  New  Departure  Mfg.  Co.  et  al.  (Assn.  of  Coaster 
Brake  Licensees),  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p. 
474;   United  States  vs  Kluge  et  al.    (Woven  Label  Mfrs'.  Assn.),  ibid.,  p. 
633;  United  States  vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  ibid.,  p.  638; 
United  States  vs  Discher  et  al.   (Automobile  Bumper  Assn.),  ibid.,  p.  647. 
See  also  Chap.  XI,  p.  183. 

78  United  States  vs  Webster  et  al.  (National  Assn.  of  Auto  Accessories 
Jobbers),  indictment  Aug.  30,  1917,  pp.  12-16;  United  States  vs  M.  Piowaty 
&  Son  et  al.   (National  Onion  Assn.),  May  24,  1917,  p.  11;    United  States 
vs  Mead  et  al.   (News  Print  Mfrs'.  Assn.),  indictment  April  12,  1917,  p.  9. 

7»  Report  of  Commissioner  of  Corporations  on  International  Harvester 
Co.,  pp.  287,  288. 


260  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

petition,  is  dangerous,  particularly  if  employed  in  connection 
with  any  other  practice  of  dubious  legality. 

Restraints  on  Competition  in  Service. — Competition  in  serv- 
ice takes  many  forms,  varying  from  free  delivery  of  goods  to  the 
furnishing  of  specialty  salesmen  to  assist  the  distributor  in 
procuring  a  satisfactory  distribution.  Its  importance  as  a  form 
of  competition  to  be  preserved  was  early  recognized  by  the 
courts  in  the  enforcement  of  the  Sherman  Law.80  The  public 
demands  special  service  in  the  way  of  delivery,  sanitary  pack- 
ages, free  repairs,  and  so  on.  Combinations  which  tend  toward 
the  elimination  of  service,  for  example  in  the  transportation  of 
freight  or  in  the  adjustment  of  claims,  are  improper.81  Thus 
agreements  to  refrain  from  competing  in  the  furnishing  of  stor- 
age for  goods  sold  and  not  delivered,  the  payment  or  allowance 
for  cartage  and  the  like,  have  been  alleged  as  violations  of  the 
law.82  In  the  meat  case,  the  packers  were  enjoined  from  em- 
ploying uniform  charges  for  cartage  in  the  delivery  of  meats 
where  the  effect  of  such  action  was  to  restrict  competition,  but 
no  such  agreements  were  prohibited  where  such  charges  were 
not  calculated  to  have  any  effect  on  competition  in  the  sale  and 
delivery  of  meats.83 

Restraints  of  Competition  in  Quality. — Concerted  action  to 
impair  the  quality  of  a  product  so  that  the  old  price  buys  an  in- 
ferior article,  results  in  public  injury  in  violation  of  the  law.84 
In  the  news  print  case,  one  of  the  allegations  in  the  indictment 
was  that  the  members  of  the  association  were  refraining  from 
competition  with  each  other  as  to  the  quality  of  paper  to  be 
sold.85 

so  United  States  vs  Trans-Missouri  Freight  Assn.,  53  Fed.  440,  452 
(1892). 

si  United  States  vs  Union  Pacific  R.  R.  Co.,  226  U.  S.  61,  87,  88 
(1912)  ;  United  States  vs  Terminal  R.  R.  Assn.,  224  U.  S.  383,  393  (1912)  ; 
see  also,  United  States  vs  Corn  Products  Co.,  234  Fed.  964,  1012  (1916). 

82  United  States  vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  indict- 
ment April  12,  1917,  p.  7. 

ss  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  p.  65. 

s*  United  States  vs  Keystone  Watch  Case  Co.,  218  Fed.  502,  518 
(1915). 

ss  United  States  vs  Mead  et  al.  (News  Print  Mfrs'.  Assn.),  indict- 
ment April  12,  1917,  p.  9. 


ILLEGAL  COLLECTIVE  ACTIVITIES  261 

Involuntary  Restraints. — When  we  come  to  the  numerous  c 
practices  designed  to  impose  restraints  upon  competitors 
against  their  will,  a  stricter  rule  applies.  Parties  may  volun- 
tarily agree  to  restrict  their  own  competition  so  long  as  the  re- 
striction is  not  so  substantial  as  to  harm  the  public  interests;  but 
jie  insfant  they  take  action  designed  to  unduly  hinder  a  com- 
petitor, the  prohibition  of  the  law  applies,  for  the  established 
policy  of  this  country  is  to  preserve  to  every  citizen  a  free  un- 
restricted opportunity  to  engage  in  business.  The  only  safe 
policy  for  the  business  man  is,  therefore,  to  engage  in  no  con- 
certed action  with  others  designed  to  injure  a  competitor.  It 
is  rare  indeed  that  a  party  engaging  in  an  involuntary  restraint 
is  not  aware  of  the  injury  to  his  competitor,  which  is  largely  if 
not  entirely  the  purpose  of  the  restraint. 

Control  of  Channels  of  Distribution. — By  far  the  most  com- 
mon  form  of  restraint  directed  at  competitors,  so  far  as  trade 
association  activities  are  concerned,  is  the  attempted  control 
of  the  channels  of  distribution.  Such  restraints  usually  take  one 
oFtwo  forms, — either  an  attempt  to  compel  the  exclusive  use  of 
one  method  of  distribution,  as,  for  example,  through  whole- 
salers, or  attempts  on  the  part  of  some  group  or  association  in 
the  industry  to  compel  the  distribution  of  the  products  of  the 
industry  solely  through  that  group,  even  though  it  represents 
only  a  part  of  that  branch  of  the  industry.  Associations  of  dis- 
tributors acting  sometimes  alone,  sometimes  in  cooperation  with 
associations  of  manufacturers,  attempt  to  dictate  and  control 
the  agencies  through  which  the  commodities  of  an  industry  shall 
move  as  they  flow  through  the  channels  of  interstate  commerce 
from  the  manufacturer  or  producer  to  the  ultimate  consumer. 
Retailers  have  endeavored  to  prevent  sales  by  manufacturers 
and  wholesalers  to  mail  order  houses,  contractors,  large  indus- 
trial users  or  consumers.  Wholesalers  have  endeavored  to  com- 
pel manufacturers  to  distribute  through  the  wholesaler  rather 
than  direct  to  the  retailer.  All  such  efforts  to  artificially  control 
the  natural  flow  of  commerce  in  an  article,  and  to  hinder  and 
restrict  the  common  liberty  to  engage  in  business,  are  unlawful.88 

86  Eastern  States  Retail  Lumber  Dealers9  Assn.  vs  United  States,  234 
U.  S.  600  (1914).  Such  activities  also  violate  the  Federal  Trade  Commis- 


262  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

In  one  of  the  earliest  association  cases  before  the  Supreme  Court 
it  was  held  that  the  constitution  and  by-laws  of  an  association 
consisting  of  manufacturers  and  retailers  which  provided  that 
the  dealers  should  \neither  purchase  from  manufacturers  not 
members  of  the  association,  nor  sell  to  any  dealer  not  a  member 
of  the  association,  fcpv.^ess  than  the  list  price,  which  was  50 
per  cent  higher  than  the-  price  to  members,  and  providing  that 
the  manufacturers  who  were  members  would  sell  to  no  one  not 
a  member  of  the  association,  was  an  unlawful  restraint  of  trade 
because  it  narrowed  the  market  for  the  sale  of  tiles  in  California 
to  other  manufacturers  and  distributors  as  well  as  enhanced 
the  price  to  dealers  not  members  of  the  Association.87  Similarly 
the  rules  of  a  fish  exchange  that  members  doing  a  commission 
business  should  not  sell  to  retailers  and  should  offer  for  sale 
each  day  on  the  exchange  any  fish  which  had  been  sold  or  as- 
signed to  them  for  sale  from  other  ports,  was  held  an  unreason- 
able restraint.88  One  of  the  earliest  Sherman  Law  cases  held 
that  the  requirement  of  a  coal  exchange  that  mine  operators 
should  not  sell  to  parties  not  members  of  the  exchange  was  un- 
lawful.89 

In  numerous  association  cases,  the  members  of  associations  of 
retailers  have  been  enjoined  from  engaging  in  any  form  of 
united  action,  either  persuasive  or  coercive,  designed  to  compel 
manufacturers  or  wholesalers  to  refrain  from  selling  to  parties 
other  than  members  of  the  association,  such  as  consumers  or 
dealers  not  recognized  by  them  as  regular  dealers.90 

sion  Act:  National  Harness  Mfrs'.  Assn.  vs  Federal  Trade  Commission, 
268  Fed.  705  (1920);  Wholesale  Grocers'  Assn.  of  El  Pa$o  vs  Federal 
Trade  Commission,  277  Fed.  657;  California  Wholesale  Grocery  Co.  et  al. 
vs  Federal  Trade  Commission,  275  Fed.  725  (1921). 

87  Montague  vs  Loicry  (Tile,  Mantel  &  Grate  Assn.  of  California),  193 
U.  S.  38,  45  (1904). 

ss  United  States  vs  New  England  Fish  Exchange,  .258  Fed.  732,  749 
(1919). 

89  United  States  vs  Jellico  Mountain  Coal  &  Coke  Co.,  46  Fed.  432, 
434  (1891). 

90  United  States  vs  Associated  Bill  Posters  &  Distributors,   Decrees 
and   Judgments   in   Federal   Anti-Trust   Cases,   p.    373;    United   States   vs 
Hollis    (Northwestern   Lumbermen's   Assn.),   ibid.,   pp.    619;    627;    United 
States  vs  Nome  Retail  Grocers'  Assn.,  ibid.,  p.  87;    United  States  vs  Na~ 


ILLEGAL  COLLECTIVE  ACTIVITIES  263 

Similarly,  associations  of  wholesalers  have  been  enjoined 
from  endeavoring  to  force  or  dissuade  manufacturers  from  sell- 
ing to  parties  not  members  of  the  association,  or  parties  not 
recognized  by  the  association  as  wholesalers,  or  to  retail  stores, 
department  stores,  mail  order  houses,  purchasing  syndicates, 
and  other  distributors.91 

Some  of  the  members  of  one  association  were  indicted  and 
convicted  for  their  efforts  to  restrict  the  retail  distribution  of 
tiles  in  their  vicinity  solely  to  the  members  of  the  association.92 
The  action  of  a  group  of  retail  lumber  dealers  in  one  city  in 
refusing  to  sell  any  consumer  or  user  of  lumber  purchasing 
from  outside  sources  unless  the  consumer  paid  to  the  combina- 
tion the  difference  in  the  price  he  paid  for  lumber  so  bought 
from  others  and  the  price  charged  therefor  by  the  local  dealers, 
and  further  agreed  to  purchase  from  them  exclusively  there- 
after, was  early  in  the  administration  of  the  Sherman  Act  held 
to  be  an  unlawful  restraint.93  Among  the  allegations  in  the  pro- 
ceeding brought  against  the  members  of  the  National  Coal  Asso- 
ciation is  the  charge  that  the  members  of  that  association  in 
concert  refused  to  sell  coal  to  consumers  wherever  local  coal 
dealers  objected  to  such  direct  sales  and  refused  to  sell  to  coal 
dealers  who  were  not  members  of  retail  coal  dealers'  associations 
doing  business  in  accordance  with  the  rules  and  regulations  of 
such  association.94 

tional  Assn.  of  Master  Plumbers,  consent,  decree,  ibid.,  p.  614;  United 
States  vs  Colorado  &  Wyoming  Lumber  Dealers'  Assn.,  consent  decree,  ibid., 
p.  669;  United  States  vs  Hartwick  et  al.  (Michigan  Retail  Lumber  Deal- 
ers' Assn.),  consent  decree,  ibid.,  p.  659;  United  States  vs  Master  Horse 
Shoers'  National  Protective  Assn.,  consent  decree,  ibid.,  p.  390. 

91  United  States  vs  Philadelphia  Jobbing  Confectionery  Assn.,  Decrees 
and   Judgments   in   Federal   Anti-Trust   Cases,   p.    398;    United   States   vs 
National  Wholesale  Jewelers'  Assn.,  consent  decree,  ibid.,  p.  521;    United 
States  vs  Southern  Wholesale  Grocers'  Assn.,  consent  decree,  ibid.,  p.  248; 
United  States  vs  Pacific  Coa^t  Plumbing  Supply  Assn.,  consent  decree,  ibid., 
p.  326. 

92  United  States  vs  Belfi  (Philadelphia  Mantel,  Tile  &  Grate  Assn.),  in- 
dictment Dec.  6,  1917.     See  also,  United  States  vs  National  Retail  Monu- 
ment Dealers'  Assn.,  indictment  July  24,  1917,  p.  5. 

w  Ellis  vs  Inman  Poulsen,  Lumber  Co.,  131  Fed.  182,  188   (1904). 
94  United  States  vs  Jones  et  al.  (National  Coal  Assn. ) ,  indictment  Feb. 
25,  1921,  p.  26. 


264  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Agreements  between  associations  of  manufacturers  and 
wholesalers,  for  example,  whereby  the  manufacturers  agree  to 
sell  only  through  the  members  of  the  wholesale  association  and 
the  wholesalers  agree  to  buy  only  through  the  manufacturers' 
association,  partake  both  of  the  nature  of  voluntary  and  invol- 
untary restraint  and  are  of  course  unquestionably  unlawful.95 
An  agreement  by  the  members  of  a  bill  posters'  association  to 
display  on  their  boards  the  posters  of  only  such  advertisers  as 
limited  their  patronage  to  members  of  the  association,  and  to 
exclude  from  their  boards  advertisers  who  patronized  any  com- 
peting bill  posters  not  members  of  the  association,  has  been  held 
illegal  for  the  reason  that  the  whole  spirit  and  policy  of  the 
law  is  opposed  to  agreements  designed  to  exclude  other  persons 
from  legitimate  commerce.96  A  combination  of  three  associa- 
tions of  manufacturers,  wholesalers  and  retailers  respectively, 
restricting  the  sale  of  proprietary  articles  solely  through  those 
who  conducted  their  business  in  accordance  with  arbitrary  stand- 
ards of  price  is  unlawful.97 

Often  used  as  means  to  control  the  channels  of  distribution, 
but  sometimes  used  for  lesser  restraints  such  as  the  elimination 
of  individual  competitors,  are  various  methods  which  the  law 
condemns.  They  range  all  the  way  from  black  lists  to  libel, 
from  boycotts  to  espionage,  comprising  a  list  which  is  steadily 
increasing  but  to  all  of  which  the  test  of  reasonableness  applies. 

Boycotts  and  Blacklists. — One  of  the  most  common  means 
employed  by  associations  to  control  the  channels  of  distribution 
or  otherwise*  restrain  trade  has  been  the  boycott.  Boycotts  take 
the  form  of  concerted  measures  either  to  refrain  from  selling  to 
or  buying  from  specified  parties.  Concerted  action  by  members 
of  a  trade  association  representing  the  greater  part  of  an  in- 
dustry is  a  powerful  weapon  of  coercion  which  an  individual 
manufacturer  or  dealer  cannot  successfully  combat.  Its  use 
tends  to  restrict  the  freedom  of  commerce  in  various  ways.  It 
always,  of  course,  restricts  the  market,  making  it  more  difficult 

95  Montague  vs  Lowry,  193  U.  S.  38  (1904). 

se  United  States  vs  Associated  Bill  Posters  et  al,  235  Fed.  540  (1916). 

97  Loder  vs  Jayne  et  al.  (Proprietary  Assn.  of  America:  National 
Wholesale  Druggists:  National  Assn.  of  Retail  Druggists),  142  Fed.  1010 
(1906), 149  Fed.  21  (1916). 


ILLEGAL  COLLECTIVE  ACTIVITIES  265 

for  a  boycotted  party  to  buy  or  sell  as  the  case  may  be.  It  may 
also  force  the  boycotted  party  to  refrain  from  competition  with 
the  parties  to  the  boycott,  for  example,  preventing  a  manufac- 
turer from  selling  directly  to  retailers  in  competition  with 
wholesalers  selling  to  the  same  class  of  trade.  Boycotts  are  op- 
posed to  the  public  policy  embodied  in  the  anti-trust  statutes 
and  are  generally  held  to  be  unlawful.98 

Indictments  have  been  returned  against  members  of  several 
associations  for  alleged  boycotts."  There  may  be  some  circum- 
stances under  which  an  association  may  take  action  closely  ap- 
proaching a  boycott,  as,  for  example,  the  exchange  of  credit 
information.100  Any  action  by  an  association  to  compel  non- 
members  to  boycott  third  parties  under  threat  of  boycott  by 
members  of  the  association  is  always  illegal.101  Members  of  an 
association  have  been  indicted  and  some  of  them  convicted  for 
concerted  action  to  induce  a  labor  union  to  refuse  to  set  tiles 
for  manufacturers  selling  through  so-called  irregular  channels.102 

Blacklists. — Probably  the  most  common  means  used  to  effect 
boycotts  has  been  the  blacklist.  The  blacklist  usually  takes  the 
form  of  notices  circulated  among  prospective  buyers  from  or 
sellers  to  the  person  to  be  boycotted,  giving  the  name  of  the 

98  Eastern  States  Retail  Lumber  Dealers'  Assn.  vs  United  States,  234 
U.  S.  600,  612   (1914)  ;  Sullivan  vs  Associated  Bill  Posters  &  Distributors 
of  the  United  States,  272  Fed.  323,  327    (1919)  ;    United  States  vs  Jellico 
Mountain  Coal  &  Coke  Co.    (Nashville  Coal  Exchange),  46  Fed.  432,  434 
(1891);    United  States  vs  King    (Aroostook  Potato  Shippers'  Assn.),  229 
Fed.  275,  279   (1915)  ;   United  States  vs  Hollis  et  al.   (Northwestern  Lum- 
bermen's Assn.),  not  reported,  6  Fed.  Anti-Trust  Decisions,  976    (1917); 
Mines  vs  Scribner,  147  Fed.  927,  928    (1906);   Stratus  vs  American  Pub- 
lishers' Assn.,  231  U.  S.  222,  236    (1913);   Loder  vs  Jayne    (Proprietary 
Assn.  of  America:    National  Wholesale  Druggists'  Assn.:   National  Assn. 
of  Retail  Druggists),  149  Fed.  21,  28  (1906). 

99  United  States  vs  National  Retail  Monument  Dealers'  Assn.  et  al., 
indictment  July  24,  1917,  p.  5;  United  States  vs  Poster  Advertising  Assn., 
Inc.  et  al.,  indictment  Jan.  26,  1921,  p.  5;  United  States  vs  Chicago  Mosaic 
d  Tiling  Co.  et  al.,  indictment  May  5,  1917,  p.  6. 

100  United  States  vs^King  et  al.   fAroostook  Potato  Shippers'  Assn.), 
229  Fed.  275,  278   (1915).     See  also  Chap.  XI. 

101  United  States  vs  King  et  al.,  supra,  pp.  279,  280. 

102  United  States  vs  Belfi  et  al.    (Philadelphia  Mantel,  Tile  &  Grate 
Assn.),  indictment  Dec.  6,  1917,  p.  7. 


266  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

party  as  a  person  with  whom  no  dealings  should  be  had.  The 
circulation  of  blacklists  has  been  enjoined  in  numerous  trade 
association  cases.103  When  a  trader  conspires  with  others  of 
like  purpose  to  obstruct  the  free  and  natural  course  of  interstate 
commerce  and  to  unduly  suppress  competition  by  placing  com- 
petitors or  others  under  the  coercive  influence  of  a  blacklist 
circulated  among  actual  or  possible  customers  of  the  offender, 
he  exceeds  the  personal  rights  granted  to  him  under  our  system 
of  government  and  comes  within  the  condemnation  of  the  Anti- 
Trust  Act.104  It  is  immaterial  whether  the  blacklist  is  circu- 
lated by  the  association  or  such  information  furnished  by  it 
to  a  trade  paper  for  circulation  or  its  distribution  secured  in 
any  other  way.  The  law  looks  to  the  effect  of  such  action,  or  in 
the  absence  of  proved  effects,  to  the  intent,  and  will  not  permit 
the  mere  form  utilized  to  circumvent  the  law.  Therefore,  en- 
tirely irrespective  of  any  compulsion  or  even  agreement,  the 
circulation  of  a  blacklist  manifestly  intended  to  put  the  ban 
upon  those  whose  names  appear  therein,  causing  an  important 
body  of  possible  customers  to  combine  with  a  view  to  joint  action 
in  matters  of  this  kind,  is  unlawful  either  if  it  restrains  com- 
merce or  if  the  intent  to  restrain  commerce  is  shown.105  Peace- 

ios  Eastern  States  Retail  Lumber  Dealers'  Assn.  vs  United  States, 
234  U.  S.  600  (1914);  Bobbs  Merrill  &  Co.  vs  Straus  (American 
Publishers'  Assn.),  139  Fed.  155,  175,  178  (1905);  Straus  vs  American 
Publishers'  Assn.,  231  U.  S.  222,  236  (1913)  ;  United  States  vs  Hollis  et  al. 
(Northwestern  Lumbermen's  Assn.),  6  Anti-Trust  Decisions,  976,  996,  for 
decree,  see  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases  619,  628 
(1917).  See  also  decree,  United  States  vs  National  Assn.  of  Retail  Drug- 
gists, Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  115,  117 
( 1907 )  ;  United  States  vs  Master  Horse  Shoers'  National  Protective  Assn., 
consent  decree,  ibid.,  pp.  388,  391  (1916)  ;  United  States  vs  Pacific  Coast 
Plumbing  Supply  Assn.,  consent  decree,  ibid.,  pp.  323,  327  (1912); 
United  States  vs  National  Wholesale  Jewelers'  Assn.,  consent  decree,  ibid., 
pp.  509,  523  (1914)  ;  United  States  vs  National  Assn.  of  Master  Plumbers, 
consent  decree,  ibid.,  pp.  603,  613  (1917)  ;  United  States  vs  Hartwick  et  al. 
(National  Ketail  Lumber  Dealers'  Assn.),  consent  decree,  ibid.,  pp.  649, 
655  (1917)  ;  United  States  vs  Colorado  &  Wyoming  Lumber  Dealers'  Assn., 
consent  decree,  ibid.,  pp.  663,  672  (1917). 

104  Eastern  States  Lumber  Dealers'  Assn.  vs  United  States,  234  U.  S. 
600,  614  (1914). 

lo^Lawlor  vs  Loewe,  235  U.  S.  522,  534  (1915)  ;  Eastern  States  Retail 
Lumber  Dealers'  Assn.  vs  United  States,  234  U.  S.  600  (1914). 


ILLEGAL  COLLECTIVE  ACTIVITIES  267 

ful  persuasion  is  as  much  within  the  prohibition  of  the  law  as 
force  or  threats  when  the  purpose  or  result  accomplished  is  a 
restraint  of  trade.106  Thus,  for  example,  where  the  history  of 
the  industry  and  the  past  efforts  of  an  association  show  the  pur- 
pose of  its  circulation,  the  mere  circulation  of  a  list  of  names 
with  the  mere  statement  of  fact  that  they  are  selling  direct  to 
consumers,  even  though  there  is  not  even  a  recommendation  of 
action  contained  in  such  circular,  will  amount  to  a  violation  of 
the  law  if  the  natural  effect  of  it  will  be  to  cause  the  parties 
among  whom  it  is  circulated  to  withhold  their  patronage  from 
the  concern  listed.107  In  such  a  case  of  concerted  action  on  the 
part  of  members  of  an  association  the  conspiracy  to  accomplish 
that  which  was  the  natural  consequence  of  such  action  may  be 
inferred  by  the  courts.108  The  reason  for  the  holding  that  a 
black  list,  for  example,  of  a  wholesaler  selling  direct,  by  an  asso- 
ciation of  retailers,  is  unlawful,  is  because  the  blacklist  tends 
directly  to  restrain  the  freedom  of  commerce  by  preventing  the 
blacklisted  dealer  from  entering  into  competition  with  retailers, 
and  also  directly  tends  to  prevent  other  dealers  who  have  no 
personal  grievance  against  him  and  with  whom  he  might  trade, 
from  doing  so,  solely  because  of  the  influence  of  the  blacklist 
circulated.  This  takes  the  blacklist  out  of  the  normal  and  usual 
agreements  in  aid  of  trade  and  commerce  and  places  it  within 
the  prohibited  restraints.109 

Whitelists. — Evidently  in  a  vain  hope  to  circumvent  the  law 
applicable  to  blacklists,  some  associations  have  endeavored  to 
accomplish  the  same  result  by  publishing  so-called  whitelists, 
which  are  lists  containing  the  names  of  the  traders  who  are 
"  legitimate "  and  acting  in  conformity  with  the  trade  policies 
of  the  association.  The  obvious  purpose  and  effect  of  a  white- 
list  is  to  procure  the  boycott  of  parties  not  listed,  and  it  is,  of 
course,  therefore  unlawful.  Such  whitelists  usually  take  the 

ice  Duplex  Printing  Co.  vs  Deering  et  al.,  254  U.  S.  443   ( 1921 ) . 

107  Eastern  States  Retail  Lumber  Dealers'  Assn.  vs  United  States,  234 
U.  S.  600,  609   (1914). 

108  Eastern  States  Retail  Lumber  Dealers'  Assn.  vs  United  States,  234 
U.  S.  600,  612    (1914). 

109  Eastern  States  Retail  Lumber  Dealers'  Assn.  vs  United  States,  234 
U.  S.  600,  612   (1914). 


268  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

form  of  pamphlets  or  booklets  given  such  names  as  "Blue 
Book,"  " Brown  Book,"  "Red  Book,"  "Green  Book,"  and  so 
on.  Only  the  names  of  those  parties  who  adhere  to  the  policies 
of  the  association  issuing  such  publications  are  listed.  Their 
clear  purpose  and  effect  is  to  restrain  trade,  and  they  are  there- 
fore unlawful.110  In  numerous  association  cases  the  circulation 
of  whitelists  has  been  enjoined.111  The  action  of  a  trade  asso- 
ciation in  conspiring  or  working  with  the  publishers  of  books 
designed  to  establish  the  credit  rating,  business  standing  and 
classification  of  dealers  whereby  the  association  procures  the 
elimination  of  dealers  whose  business  does  not  conform  to  the 
standards  of  classification  recognized  by  the  association,  is  un- 
lawful, for  such  publications  are  plainly  whitelists.112  The 
members  of  one  association  were  indicted  and  some  of  them 
fined  for  the  circulation  among  their  members  of  so-called  hon- 
orary lists  of  producers,  manufacturers  and  wholesalers  who 
refused  to  sell  to  so-called  illegitimate  dealers  who  were  not 
members  of  the  association.113 

Cutting  Off  Competitors'  Supply. — Clearly  allied  with  the 

no Knauer  vs  United  States  (National  Assn.  of  Master  Plumbers), 
237  Fed.  8  (1916);  United  States  vs  Southern  Wholesale  Grocers'  Assn. 
et  al.,  207  Fed.  434,  439  (1913).  But  see  Chas.  A.  Ramsey  Co.  vs  Asso- 
ciated Bill  Posters  of  United  States  &  Canada,  271  Fed.  140,  141-143 
(1921). 

in  United  States  vs  Hollis  et  al.  (Northwestern  Lumbermen's  Assn), 
Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  619-627  (1917); 
United  States  vs  Southern  Wholesale  Grocers'  Assn.,  consent  decree,  ibid., 
pp.  247,  248  (1911);  United  States  vs  Pacific  Coast  Plumbing  Supply 
Assn.,  consent  decree,  ibid.,  pp.  323,  326  (1912)  ;  United  States  vs  Master 
Horse  Shoers'  Protective  Assn.,  consent  decree,  ibid.,  pp.  388,  391  (1916)  ; 
United  States  vs  New  Departure  Mfg.  Co.  (Asso.  of  Coaster  Brake  Li- 
censees), consent  decree,  ibid.,  pp.  471,  474  (1913)  ;  United  States  vs  Hart- 
wick  et  al.,  consent  decree,  ibid.,  pp.  649,  661  (1917);  United  States  vs 
Colorado  &  Wyoming  Lumber  Dealers'  Assn.,  consent  decree,  ibid.,  pp.  663, 
671  (1917)  ;  United  States  vs  National  Wholesale  Jewelers'  Assn.  et  al., 
consent  decree,  ibid.,  pp.  509,  517,  523  (1914);  United  States  vs  National 
Assn.  of  Master  Plumbers,  consent  decree,  ibid.,  pp.  603,  616  (1917). 

112  United  States  vs  Hollis  et  al.  (Northwestern  Lumbermen's  Assn.), 
Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  pp.  619,  625,  62B 
(1917). 

us  United  States  vs  National  Retail  Monument  Dealers'  Assn.,  indict- 
ment July  24,  1917,  p.  5. 


ILLEGAL  COLLECTIVE  ACTIVITIES  2G9 

boycott  and  usually  part  of  a  general  plan  of  control  of  dis- 
tribution are  collective  efforts  to  shut  off  the  supply  of  competi- 
tors. Such  action  is  usually  secured  by  threatening  the  source 
of  supply  with  boycotts  unless  they  cease  to  sell  to  such  com- 
petitors. Thus  the  Bill  Posters'  Association  was  enjoined  from 
attempting  any  measure  whatsoever  to  prevent  any  person  from 
contracting  with  any  bill  posters,  whether  or  not  a  member  of 
the  association,  for  the  posting  of  advertising  matter  or  posters 
sent  to  him,  or  requiring  that  solicitors  employed  by  the  asso- 
ciation should  not  send  business  relating  to  the  posting  of 
posters  to  parties  not  members  of  the  association,  or  from  en- 
deavoring to  induce  manufacturers  of  posters  not  to  sell  the 
same  upon  equal  terms  to  any  person  desiring  to  purchase.114 
In  the  Eastman  Kodak  case,  the  defendant  was  enjoined  from 
taking  action  to  prevent  its  competitors  from  obtaining  raw 
paper  stock.115 

The  courts  have  even  enjoined  members  of  trade  associations 
from  communicating  with  manufacturers  or  others  for  the  pur- 
pose of  inducing  such  parties  to  cut  off  the  source  of  supply  of 
competitors  not  members  of  the  association.116 

Interfering  with  Labor  Supply. — Equally  harmful  in  its 
effects  are  efforts  on  the  part  of  a  trade  association  to  interfere 
with  the  labor  supply  of  competitors.  Among  the  charges  in 
the  indictment  under  which  some  members  of  the  Philadelphia 
Tile,  Mantel  and  Grate  Association  were  prosecuted  was  the 
allegation  that  the  defendants  entered  into  a  written  contract 
with  a  union  comprising  a  large  majority  of  the  skilled  tile 
setters  in  Philadelphia  and  vicinity  to  the  effect  that  its  mem- 
bers would  work  for  the  members  of  the  association  in  prefer- 
ence to  non-members  and  that  they  also  entered  into  an  oral 

in  United  States  vs  Associated  Bill  Posters  &  Distributors,  Decrees 
and  Judgment  in  Federal  Anti-Trust  Cases,  pp.  373,  375,  376. 

us  Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  pp.  477, 
478  (1916). 

us  United  States  vs  Hollis  et  al.  (Northwestern  Lumbermen's  Assn.), 
Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  pp.  619,  628  (1917)  ; 
United  States  vs  Colorado  &  Wyoming  Lumber  Dealers'  Assn.,  consent  de- 
cree, ibid.,  pp.  663,  672  (1917)  ;  United  States  vs  Hartwick  et  al.  (Lumber 
Secretaries'  Bureau  of  Information),  consent  decree,  ibid.,  pp.  649,  662 
(1917). 


270  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

agreement  that  the  members  of  the  union  would  not  set  tile  for 
non-members  of  the  association.117 

In  the  indictment  of  members  of  the  Chicago  Mantel  and 
Tile  Contractors'  Association,  it  was  alleged  that  the  defendants 
by  concerted  action  hindered  non-member  dealers  and  contrac- 
tors in  tiles  from  securing  labor  essential  to  their  doing  business 
by  concertedly  inducing  the  Building  Construction  Employers* 
Association  of  that  city  not  to  receive  them  as  members.118 

Similarly  a  large  number  of  manufacturers  of  sash,  door  and 
interior  finish  in  Chicago,  together  with  the  members  of  a  labor 
union  there  located,  were  indicted,  it  faeing  alleged  that  they 
were  obstructing  the  business  of  competitors  located  outside  of 
Chicago  by  entering  into  an  agreement  whereby  the  manufac- 
turers and  contractors  agreed  to  employ  only  members  of  the 
union  and  the  members  of  the  union  agreed  to  refuse  to  install 
any  such  building  materials  as  should  be  sold  by  concerns  whose 
plants  were  located  outside  the  State  of  Illinois.119 

Interference  with  Procurement  of  Storage  Facilities. — It  was 
alleged  in  another  indictment  under  which  one  defendant  pled 
guilty  and  was  fined,  that  the  defendants  had  attempted  to  pre- 
vent their  competitors  from  obtaining  storage  facilities  for  their 
perishable  products  in  order  to  cause  deterioration  in  the  quality 
of  such  products  sufficient  to  compel  their  competitors  to  sell  their 
products  at  a  loss.120 

Price  Discriminations. — Closely  related  to  the  boycott  is 
concerted  action  by  association  members  to  make  discriminatory 
prices  to  certain  traders  with  the  idea  of  making  it  more  diffi- 
cult for  them  to  engage  in  business.  The  action  of  an  incor- 
porated association  in  entering  into  an  agreement  with  the 
manufacturer  representing  the  largest  portion  of  the  supply 
whereby  such  members  agreed  to  buy  of  no  other  manufacturer 
except  at  substantially  lower  prices,  and  such  manufacturer 

H7  United  States  vs  Belfi  et  al.,  indictment  Dec.  6,  1917,  p.  7. 

us  United  States  vs  Chicago  Mosaic  &  Tiling  Co.  et  al.,  indictment 
May  5,  1917,  p.  7. 

us  Indictment,  United  States  vs  Andrews  Lumber  &  Mill  Co.  et  al., 
Jan.  21,  1921,  p.  6. 

120  Indictment,  United  States  vs  Jensen  Creamery  Go.  et  al.,  Feb.  24, 
1917,  p.  18. 


ILLEGAL  COLLECTIVE  ACTIVITIES  271 

agreed  to  sell  to  no  other  dealer  except  at  prices  much  higher, 
has  been  condemned  by  the  courts.121  Such  an  agreement  neces- 
sarily unduly  hindered  competing  manufacturers  by  stifling  the 
sale  of  their  product  except  at  abnormally  low  prices,  and  at 
the  same  time  hindered  the  competition  of  other  dealers  by 
making  it  difficult  for  them  to  secure  the  product  except  at  a 
greatly  enhanced  price.  Among  the  charges  contained  in  the 
indictment  against  members  of  the  Steamship  Freight  Brokers' 
Association  and  members  of  the  Trans-Atlantic  Associated 
Freight  Conference  was  an  alleged  agreement  to  discriminate 
against  freight  brokers  and  forwarders  not  members  of  the 
Steamship  Freight  Brokers '  Association  by  refusing  to  pay 
them  any  brokerage  fee.122  It  may  safely  be  said  that  any 
agreement  on  the  part  of  members  of  an  association  to  dis- 
criminate in  price  against  non-members,  or  agreements  by  an 
association  with  other  organizations  to  so  discriminate,  if  de- 
signed to  hamper  unduly  the  competition  of  non-members  is  in 
violation  of  the  law. 

Fighting  Instruments. — The  action  of  a  combination  of 
steamship  companies  in  employing  ''fighting  ships "  has  been 
held  to  be  an  unfair  restraint  of  trade.123  These  ships  were 
extra  vessels  put  on  when  a  non-member  of  the  organization 
made  lower  rates  than  those  quoted  by  the  combination,  and 
ostensibly  operated  by  one  of  the  shipping  companies  in  the 
combination,  but  in  reality  by  the  combination  itself  at  the  same 
or  a  lower  rate  to  drive  the  non-member  out  of  business. 

Malicious  Litigation. — The  systematic  institution  of  legal 
proceedings  in  bad  faith  in  order  to  use  the  courts  as  instru- 
mentalities of  oppression  and  thereby  eliminate  competitors,  is 
unlawful.124  But  even  an  illegal  combination  may  protect 

121  Wheeler  Stenzel  Co.  vs  National  Window  Glass  Jobbers'  Assn.,  152 
Fed.  864  (1907). 

122  United  States  vs  Walter  Moore  et  al.,  indictment  Aug.  30,   1920, 
p.  8. 

123  United  States  vs  Hamburg  American  8.  8.  Line  et  al.,  216  Fed.  971, 
973   (1914). 

124  Patterson  vs  United  States,  222  Fed.  599,  643    (1915).     See  also, 
consent  decree,  United  States  vs  Bowser  &  Co.,  Decrees  and  Judgments  in 
Federal  Anti-Trust  Cases,  p.  591. 


272  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

patent  rights  owned  by  it  by  suits  for  infringement  brought  in 
good  faith.125  So  also  the  fact  that  the  party  suing  may  be 
using  some  method  which  violates  the  anti-trust  acts  does  not 
preclude  him  from  maintaining  a  suit  brought  in  good  faith  for 
infringement.126 

Espionage. — The  use  of  detectives  or  other  means  of  espion- 
age to  acquire  information  as  to  a  competitor's  business  secrets, 
such  as  his  source  of  supply,  his  sales  and  his  shipments,  has 
been  enjoined  when  a  part  of  a  general  plan  to  restrain  trade. 
Thus  an  injunction  was  issued  against  a  detective  agency  as 
one  of  the  defendants  in  a  proceeding  brought  against  the 
Northwest  Lumbermen's  Association,  this  agency  having  been 
employed  by  the  association  to  secure  information  regarding 
so-called  irregular  shipments  by  manufacturers  and  wholesalers 
direct  to  the  consumer.127  The  members  of  the  National  Asso- 
ciation of  Master  Plumbers  were  likewise  enjoined  from  main- 
taining a  system  of  espionage  over  manufacturers  and  whole- 
salers, particularly  covering  sales  by  manufacturers  and  whole- 
salers to  consumers  or  persons  not  members  of  the  association.128 
In  at  least  two  criminal  proceedings,  members  of  trade  associa- 
tions have  been  indicted  for  the  alleged  use  of  espionage  meth- 
ods, designed  to  secure  information  as  to  the  source  of  supply 
of  competitors.129 

Intimidation  and  Coercion. — Threats,  intimidation  or  coer- 
cion employed  to  accomplish  a  trade  restraint,  whether  made 

125  Virtue  vs  Creamery  Package  Co.,  227  U.  S.  8 ;   Fraser  vs  Duffey 
et  al.,  196  Fed.  900,  903. 

126  Searchlight  Gas  Co.  vs  Prest-0-Lite  Co.,  215  Fed.  692,  697   (1914)  ; 
Prest-0-Lite  Co.  vs  Davis,  209  Fed.  917,  919   (1913). 

127  United  States  vs  Hollis  et  al.,  Decrees  and  Judgments  in  Federal 
Anti-Trust  Cases,  pp.  619,  624,  628. 

128  United  States  vs  National  Assn.  of  Master  Plumbers,  consent  de- 
cree, Decrees  and  Judgments  in  Federal  Anti-Trust  Cases,  pp.   603,   612; 
see  also,  United  States  vs  National  Cash  Register  Co.,  consent  decree,  ibid., 
pp.  315,  316;    United  States  vs  Burroughs  Adding  Machine  Co.,  ibid.,  pp. 
457,  458. 

129  Indictment,    United   States   vs   Chicago   Mosaic   Tiling    Co.    et   al. 
(Chicago   Mantel   &  Tile   Contractors'   Assn.);    indictment,   May  5,    1917, 
p.  8;    United  States  vs  Belfi  et  al.    (Philadelphia  Tile,  Mantel   &  Grate 
Assn.),  indictment,  Dec.  6,  1917,  p.  6. 


ILLEGAL  COLLECTIVE  ACTIVITIES  273 

effective  in  whole  or  in  part  by  acts,  words,  or  printed  matter, 
are  unlawful.130  The  action  of  an  association  in  endeavoring  to 
compel  outside  parties  to  refrain  from  dealing  with  parties  ob- 
jectionable to  the  association  is  unlawful  and  no  alleged  good 
purpose  can  make  such  a  restraint  legal.131  In  several  cases  in- 
dictments have  been  returned  against  parties  alleged  to  have 
combined  to  coerce  outside  parties  or  members  of  the  association 
to  comply  with  rules,  regulations  or  so-called  trade  ethics,  de- 
signed to  prevent  competition.132  The  form  of  coercion  is  of 
course  immaterial.  It  may  be  threat  of  boycott,  threats  to  drive 
out  of  business,  threats  of  physical  violence  or  what  not.  What- 
ever form  it  may  take,  if  its  effect  is  to  restrain  the  trade  of 
competitors  it  is  unlawful ;  otherwise  the  law  would  be  rendered 
impotent.133 

Misuse  of  Governmental  Agencies. — There  have  been  re- 
peated attempts  both  during  the  war  and  since  to  utilize  govern- 
mental agencies  for  purposes  of  restraint  of  trade.  In  one  in- 
stance certain  officers  of  an  association  have  been  indicted, 
among  other  acts,  for  their  alleged  action  in  procuring  priority 
orders  from  the  Interstate  Commerce  Commission  diverting  coal 
from  its  normal  markets  into  distant  sections  in  order  to  dis- 
rupt the  normal  distribution  of  coal  and  thereby  put  coal  on  a 
''spot"  market  distribution  basis.134  In  another  criminal  pro- 
ceeding, a  number  of  parties  were  indicted,  one  of  the  charges 
being  that  they  tried  to  influence  legislation  in  certain  states  in 

woGompers  vs  Buck  Stove  &  Range  Co.,  221  U.  S.  418,  438  (1911); 
United  States  vs  Debs  et  al.,  Decrees  and  Judgments  in  Federal  Anti- 
Trust  Cases,  pp.  14,  15;  United  States  vs  Workingman's  Amalgamated 
Council,  ibid.,  p.  9. 

isi  United  States  vs  King  et  al.,  229  Fed.  275,  280  (1915)  (Aroostook 
Potato  Shippers'  Assn).  See  also,  United  States  vs  Hollis  et  al.,  Decrees 
and  Judgments  in  Federal  Anti-Trust  Cases,  p.  627;  United  States  va 
Associated  Bill  Posters,  ibid.,  p.  375. 

132  United  States  vs  Walter  Moore  et  al.  ( Steamship  Freight  Brokers' 
Assn.),  indictment  August  30,  1920,  p.  8;  United  States  vs  Jensen  Cream* 
ery  Co.  et  al.,  indictment  Feb.  24,  1917,  p.  21 ;  United  States  vs  W.  Hamil- 
ton Smith  et  al.,  indictment  March  3,  1921,  p.  8. 

iss  Gompers  vs  Buck  Stove  d  Range  Co.,  221  U.  S.  418,  438    (1911). 

is*  United  States  vs  Jones  et  al.  (National  Coal  Assn.),  indictment 
Feb.  25,  1921,  pp.  27,  36,  45,  54,  62. 


274  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

their  own  favor  to  the  injury  and  detriment  of  their  competi- 
tors.135 While  any  such  instance  of  restraint  of  trade  is  un- 
lawful, some  organizations  are  from  time  to  time,  by  misrepre- 
sentations of  fact,  procuring  governmental  action  apparently 
under  the  mistaken  belief  that  the  action  being  taken  by  the 
government,  there  is  no  danger  of  liability  on  the  part  of  the 
association  or  its  members  for  the  restraint  produced. 

It  is,  of  course,  impossible  to  enumerate  all  collective  activi- 
ties which  are  in  restraint  of  trade.  The  forms  of  voluntary 
restraints  are  fairly  well  defined.  The  imposition  of  restraints 
upon  others,  however,  will  constantly  take  new  forms  in  re- 
sponse to  changing  conditions.  But  regardless  of  the  form 
taken,  if  they  are  unfair,  if  they  unduly  hinder  competitors, 
they  will  certainly  be  in  violation  either  of  the  anti-trust  laws 
or  the  Federal  Trade  Commission  Act.  It  cannot  be  too 
strongly  emphasized  that  the  Supreme  Court  of  the  United 
States  is  determined  that  no  subterfuge,  no  indirection,  shall 
be  employed  to  evade  the  laws  and  public  policy  of  our  govern- 
ment, which  require  the  maintenance  of  equal  opportunity  for 
all  under  fair,  unrestricted  competitive  conditions.  The  great 
future  of  our  trade  associations  will  be  achieved  in  constructive 
efforts  for  the  common  good,  and  not  in  attempted  evasions  of 
the  law. 

135  United  States  vs  Jensen  Creamery  Co.,  indictment  Feb.  24,  1917, 
p.  19. 


APPENDICES 

A.  Sherman  Anti-Trust  Act :  26  Stat.  209. 

B.  Clayton  Act :  38  Stat.  730. 

C.  Webb  Export  Act :  40  Stat.  516. 

D.  Capper- Volstead  Act :  Act  to  authorize  association  of  pro- 
ducers of  agricultural  products :  Feb.  18,  1922. 

E.  Federal  Trade  Commission  Act:  38  Stat.  717. 

F.  Title  VIII,  Unfair  Competition:  Act  of  Sept.  8,  1916, 
Sections  800-803 :  39  Stat.  798. 

G.  Packers  and  Stockyards  Act  of  1921 :  Aug.  15,  1921. 
H.    Wilson   Tariff  Act:    Sections   73-77:   28   Stat.   570:    37 

Stat.  667. 

I.  Panama  Canal  Act:  Section  11,  paragraph  4:  37  Stat. 
560. 

J.  Correspondence  between  Department  of  Commerce  and 
Department  of  Justice  upon  the  activities  of  trade  associations. 


APPENDIX  A 

SHERMAN  ANTI-TRUST  ACT 
[Act  of  July  2,  1890  (26  Stat.,  209).] 

AN  ACT  To  protect  trade  and  commerce  against  unlawful  restraints  and 

monopolies. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled, 

SEC.  1.  Every  contract,  combination  in  the  form  of  trust  or  otherwise, 
or  conspiracy,  in  restraint  of  trade  or  commerce  among  the  several  States, 
or  with  foreign  nations,  is  hereby  declared  to  be  illegal.  Every  person  who 
shall  make  any  such  contract  or  engage  in  any  such  combination  or  con- 
spiracy shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  conviction  thereof, 
shall  be  punished  by  fine  not  exceeding  five  thousand  dollars,  or  by  im- 
prisonment not  exceeding  one  year,  or  by  both  said  punishments,  in  the 
discretion  of  the  court. 

SEC.  2.  Every  person  who  shall  monopolize  or  attempt  to  monopolize, 
or  combine  or  conspire  with  any  other  person  or  persons,  to  monopolize  any 
part  of  the  trade  or  commerce  among  the  several  States,  or  with  foreign 
nations,  shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  conviction 
thereof,  shall  be  punished  by  fine  not  exceeding  five  thousand  dollars,  or  by 
imprisonment  not  exceeding  one  year,  or  by  both  said  punishments,  in  the 
discretion  of  the  court. 

SEC.  3.  Every  contract,  combination  in  form  of  trust  or  otherwise, 
or  conspiracy,  in  restraint  of  trade  or  commerce  in  any  Territory  of  the 
United  States  or  of  the  District  of  Columbia,  or  in  restraint  of  trade  or 
commerce  between  any  such  Territory  and  another,  or  between  any  such 
Territory  or  Territories  and  any  State  or  States  or  the  Distict  of  Colum- 
bia, or  with  foreign  nations,  or  between  the  District  of  Columbia 
and  any  State  or  States  or  foreign  nations,  is  hereby  declared  illegal. 
Every  person  who  shall  make  any  such  contract  or  engage  in  any  such 
combination  or  conspiracy  shall  be  deemed  guilty  of  a  misdemeanor,  and, 
on  conviction  thereof,  shall  be  punished  by  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by  both  said  punish- 
ments, in  the  discretion  of  the  court. 

SEC.  4.  The  several  circuit  courts  of  the  United  States  are  hereby  in- 
vested with  jurisdiction  to  prevent  and  restrain  violations  of  this  act;  and 
it  shall  be  the  duty  of  the  several  district  attorneys  of  the  United  States, 
in  their  respective  districts,  under  the  direction  of  the  Attorney  General, 
to  institute  proceedings  in  equity  to  prevent  and  restrain  such  violations. 

277 


278  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

Such  proceedings  may  be  by  way  of  petition  setting  forth  the  case  and 
praying  that  such  violation  shall  be  enjoined  or  otherwise  prohibited. 
When  the  parties  complained  of  shall  have  been  duly  notified  of  such  peti- 
tion the  court  shall  proceed,  as  soon  as  may  be,  to  the  hearing  and  deter- 
mination of  the  case;  and  pending  such  petition  and  before  final  decree, 
the  court  may  at  any  time  make  such  temporary  restraining  order  or  pro- 
hibition as  shall  be  deemed  just  in  the  premises. 

SEC.  5.  Whenever  it  shall  appear  to  the  court  before  which  any  pro- 
ceeding under  section  four  of  this  act  may  be  pending  that  the  ends  of 
justice  require  that  other  parties  should  be  brought  before  the  court,  the 
court  may  cause  them  to  be  summoned,  whether  they  reside  in  the  district 
in  which  the  court  is  held  or  not;  and  subpoenas  to  that  end  may  be 
served  in  any  district  by  the  marshal  thereof. 

SEC.  6.  Any  property  owned  under  any  contract  or  by  any  combina- 
tion, or  pursuant  to  any  conspiracy  (and  being  the  subject  thereof)  men- 
tioned in  section  one  of  this  act,  and  being  in  the  course  of  transportation 
from  one  State  to  another,  or  to  a  foreign  country,  shall  be  forfeited  to  the 
United  States,  and  may  be  seized  and  condemned  by  like  proceedings  as 
those  provided  by  law  for  the  forfeiture,  seizure,  and  condemnation  of 
property  imported  into  the  United  States  contrary  to  law. 

SEC.  7.  Any  person  who  shall  be  injured  in  his  business  or  property 
by  any  other  person  or  corporation,  by  reason  of  anything  forbidden  or  de- 
clared to  be  unlawful  by  this  act,  may  sue  therefor  in  any  circuit  court  of 
the  United  States  in  the  district  in  which  the  defendant  resides  or  is 
found,  without  respect  to  the  amount  in  controversy,  and  shall  recover 
threefold  the  damages  by  him  sustained,  and  the  costs  of  suit,  including  a 
reasonable  attorney's  fee. 

SEC.  8.  The  word  "person,"  or  "persons,"  wherever  used  in  this  act 
shall  be  deemed  to  include  corporations  and  associations  existing  under 
or  authorized  by  the  laws  of  either  the  United  States,  the  laws  of  any  of 
the  Territories,  the  laws  of  any  State,  or  the  laws  of  any  foreign  country. 


APPENDIX  B 

THE  CLAYTON  ACT 

[Act  of  October  15,  1914   (38  Stat.  730).] 

AN  ACT  To   supplement   existing   laws   against   unlawful   restraints   and 
monopolies,  and  for  other  purposes. 

Be  it  enacted  ly  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  "anti-trust  laws,"  as  used 
herein,  includes  the  Act  entitled  "An  Act  to  protect  trade  and  commerce 
against  unlawful  restraints  and  monopolies,"  approved  July  second, 
eighteen  hundred  and  ninety;  sections  seventy- three  to  seventy-seven,  inclu- 
sive, of  an  Act  entitled  "An  Act  to  reduce  taxation,  to  provide  revenue 
for  the  Government,  and  for  other  purposes,"  of  August  twenty-seventh, 
eighteen  hundred  and  ninety-four;  an  Act  entitled  "An  Act  to  amend  sec- 
tions seventy-three  and  seventy-six  of  the  Act  of  August  twenty-seventh, 
eighteen  hundred  and  ninety-four,  entitled  'An  Act  to  reduce  taxation,  to 
provide  revenue  for  the  Government,  and  for  other  purposes,'  "  approved 
February  twelfth,  nineteen  hundred  and  thirteen;  and  also  this  Act. 

"Commerce,"  as  used  herein,  means  trade  or  commerce  among  the 
several  States  and  with  foreign  nations,  or  between  the  District  of  Columbia 
or  any  Territory  of  the  United  States  and  any  State,  Territory,  or  foreign 
nation,  or  between  any  insular  possessions  or  other  places  under  the  juris- 
diction of  the  United  States,  or  between  any  such  possession  or  place  and 
any  State  or  Territory  of  the  United  States  or  the  District  of  Columbia  or 
any  foreign  nation,  or  within  the  District  of  Columbia  or  any  Territory  or 
any  insular  possession  or  other  place  under  the  jurisdiction  of  the  United 
States:  Provided,  That  nothing  in  this  Act  contained  shall  apply  to  the 
Philippine  Islands. 

The  word  "person"  or  "persons"  wherever  used  in  this  Act  shall  be 
deemed  to  include  corporations  and  associations  existing  under  or  author- 
ized by  the  laws  of  either  the  United  States,  the  laws  of  any  of  the  Terri- 
tories, the  laws  of  any  State,  or  the  laws  of  any  foreign  country. 

SEC.  2.  That  it  shall  be  unlawful  for  any  person  engaged  in  com- 
merce, in  the  course  of  such  commerce,  either  directly  or  indirectly  to  dis- 
criminate in  price  between  different  purchasers  of  commodities,  which  com- 
modities are  sold  for  use,  consumption,  or  resale  within  the  United  States 
or  any  Territory  thereof  or  the  District  of  Columbia  or  any  insular  pos- 
session or  other  place  under  the  jurisdiction  of  the  United  States,  where 
the  effect  of  such  discrimination  may  be  to  substantially  lessen  competi- 

279 


280  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

tion  or  tend  to  create  a  monopoly  in  any  line  of  commerce:  Provided,  That 
nothing  herein  contained  shall  prevent  discrimination  in  price  between 
purchasers  of  commodities  on  account  of  differences  in  the  grade,  quality,  or 
quantity  of  the  commodity  sold,  or  that  makes  only  due  allowance  for  dif- 
ference in  the  cost  of  selling  or  transportation,  or  discrimination  in  price 
in  the  same  or  different  communities  made  in  good  faith  to  meet  competi- 
tion: And  provided  further,  That  nothing  herein  contained  shall  prevent 
persons  engaged  in  selling  goods,  wares,  or  merchandise  in  commerce  from 
selecting  their  own  customers  in  bona  fide  transactions  and  not  in  restraint 
of  trade. 

SEC.  3.  That  it  shall  be  unlawful  for  any  person  engaged  in  commerce, 
in  the  course  of  such  commerce,  to  lease  or  make  a  sale  or  contract  for 
sale  of  goods,  wares,  merchandise,  machinery,  supplies  or  other  commodi- 
ties, whether  patented  or  unpatented,  for  use,  consumption  or  resale  within 
the  United  States  or  any  Territory  thereof  or  the  District  of  Columbia 
or  any  insular  possession  or  other  place  under  the  jurisdiction  of  the 
United  States,  or  fix  a  price  charged  therefor,  or  discount  from,  or  rebate 
upon,  such  price,  on  the  condition,  agreement  or  understanding  that  the 
lessee  or  purchaser  thereof  shall  not  use  or  deal  in  the  goods,  wares,  mer- 
chandise, machinery,  supplies  or  other  commodities  of  a  competitor  or  com- 
petitors of  the  lessor  or  seller,  where  the  effect  of  such  lease,  sale,  or  con- 
tract for  sale  or  such  condition,  agreement  or  understanding  may  be  to 
substantially  lessen  competition  or  tend  to  create  a  monopoly  in  any  line 
of  commerce. 

SEC.  4.  That  any  person  who  shall  be  injured  in  his  business  or  prop- 
erty by  reason  of  anything  forbidden  in  the  anti-trust  laws  may  sue  there- 
for in  any  district  court  of  the  United  States  in  the  district  in  which  the 
defendant  resides  or  is  found  or  has  an  agent,  without  respect  to  the 
amount  in  controversy,  and  shall  recover  threefold  the  damages  by  him 
sustained,  and  the  cost  of  suit,  including  a  reasonable  attorney's  fee. 

SEC.  5.  That  a  final  judgment  or  decree  hereafter  rendered  in  any 
criminal  prosecution  or  in  any  suit  or  proceeding  in  equity  brought  by  or 
on  behalf  of  the  United  States  under  the  anti-trust  laws  to  the  effect  that 
a  defendant  has  violated  said  laws  shall  be  prima  facie  evidence  against 
such  defendant  in  any  suit  or  proceeding  brought  by  any  other  party 
against  such  defendant  under  said  laws  as  to  all  matters  respecting  which 
said  judgment  or  decree  would  be  an  estoppel  as  between  the  parties 
thereto:  Provided,  This  section  shall  not  apply  to  ronsent  judgments  or 
decrees  entered  before  any  testimony  has  been  taken:  Provided  further, 
This  section  shall  not  apply  to  consent  judgments  or  decrees  rendered 
in  criminal  proceedings  or  suits  in  equity,  now  pending,  in  which  the 
taking  of  testimony  has  been  commenced  but  has  not  been  concluded,  pro- 
vided such  judgments  or  decrees  are  rendered  before  any  further  testimony 
is  taken. 

Whenever  any  suit  or  proceeding  in  equity  or  criminal  prosecution  is 
instituted  by  the  United  States  to  prevent,  restrain  or  punish  violations 


APPENDICES  281 

of  any  of  the  anti-trust  laws,  the  running  of  the  statute  of  limitations  in 
respect  of  each  and  every  private  right  of  action  arising  under  said  laws 
and  based  in  whole  or  in  part  on  any  matter  complained  of  in  said  suit 
or  proceeding  shall  be  suspended  during  the  pendency  thereof. 

SEC.  6.  That  the  labor  of  a  human  being  is  not  a  commodity  or  article 
of  commerce.  Nothing  contained  in  the  anti-trust  laws  shall  be  construed 
to  forbid  the  existence  and  operation  of  labor,  agricultural,  or  horticul- 
tural organizations,  instituted  for  the  purposes  of  mutual  help,  and  not 
having  capital  stock  or  conducted  for  profit,  or  to  forbid  or  restrain 
individual  members  of  such  organizations  from  lawfully  carrying  out  the 
legitimate  objects  thereof;  nor  shall  such  organizations,  or  the  members 
thereof,  be  held  or  construed  to  be  illegal  combinations  or  conspiracies  in 
restraint  of  trade,  under  the  anti-trust  laws. 

SEC.  7.  That  no  corporation  engaged  in  commerce  shall  acquire,  di- 
rectly or  indirectly,  the  whole  or  any  part  of  the  stock  or  other  share  cap- 
ital of  another  corporation  engaged  also  in  commerce,  where  the  effect  of 
such  acquisition  may  be  to  substantially  lessen  competition  between  the 
corporation  whose  stock  is  so  acquired  and  the  corporation  making  the 
acquisition,  or  to  restrain  such  commerce  in  any  section  or  community,  or 
tend  to  create  a  monopoly  of  any  line  of  commerce. 

No  corporation  shall  acquire,  directly  or  indirectly,  the  whole  or  any 
part  of  the  stock  or  other  share  capital  of  two  or  more  corporations  en- 
gaged in  commerce  where  the  effect  of  such  acquisition,  or  the  use  of  such 
stock  by  the  voting  or  granting  of  proxies  or  otherwise,  may  be  to  sub- 
stantially lessen  competition  between  such  corporations,  or  any  of  them, 
whose  stock  or  other  share  capital  is  so  acquired,  or  to  restrain  such  com- 
merce in  any  section  or  community,  or  tend  to  create  a  monopoly  of  any 
line  of  commerce. 

This  section  shall  not  apply  to  corporations  purchasing  such  stock 
solely  for  investment  and  not  using  the  same  by  voting  or  otherwise  to 
bring  about,  or  in  attempting  to  bring  about,  the  substantial  lessening  of 
competition.  Nor  shall  anything  contained  in  this  section  prevent  a  cor- 
poration engaged  in  commerce  from  causing  the  formation  of  subsidiary 
corporations  for  the  actual  carrying  on  of  their  immediate  lawful  business, 
or  the  natural  and  legitimate  branches  or  extensions  thereof,  or  from  own- 
ing and  holding  all  or  a  part  of  the  stock  of  such  subsidiary  corporations, 
when  the  effect  of  such  formation  is  not  to  substantially  lessen  com- 
petition. 

Nor  shall  anything  herein  contained  be  construed  to  prohibit  any 
common  carrier  subject  to  the  laws  to  regulate  commerce  from  aiding  in 
the  construction  of  branches  or  short  lines  so  located  as  to  become  feeders 
to  the  main  line  of  the  company  so  aiding  in  such  construction  or  from 
acquiring  or  owning  all  or  any  part  of  the  stock  of  such  branch  lines,  nor 
to  prevent  any  such  common  carrier  from  acquiring  and  owning  all  or 
any  part  of  the  stock  of  a  branch  or  short  line  constructed  by  an  inde- 
pendent company  where  there  is  no  substantial  competition  between  the 


282  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

company  owning  the  branch  line  so  constructed  and  the  company  owning 
the  main  line  acquiring  the  property  or  an  interest  therein,  nor  to  pre- 
vent such  common  carrier  from  extending  any  of  its  lines  through  the 
medium  of  the  acquisition  of  stock  or  otherwise  of  any  other  such  common 
carrier  where  there  is  no  substantial  competition  between  the  company  ex- 
tending its  lines  and  the  company  whose  stock,  property,  or  an  interest 
therein  is  so  acquired. 

Nothing  contained  in  this  section  shall  be  held  to  affect  or  impair 
any  right  heretofore  legally  acquired:  Provided,  That  nothing  in  this  sec- 
tion shall  be  held  or  construed  to  authorize  or  make  lawful  anything  here- 
tofore prohibited  or  made  illegal  by  the  anti-trust  laws,  nor  to  exempt 
any  person  from  the  penal  provisions  thereof  01  the  civil  remedies  therein 
provided. 

SEC.  8.  That  from  and  after  two  years  from  the  date  of  the  approval 
of  this  Act  no  person  shall  at  the  same  time  be  a  director  or  other  officer 
or  employee  of  more  than  one  bank,  banking  association  or  trust  company, 
organized  or  operating  under  the  laws  of  the  United  States,  either  of  which 
has  deposits,  capital,  surplus,  and  undivided  profits  aggregating  more 
than  $5,000,000;  and  no  private  banker  or  person  who  is  a  director  in 
any  bank  or  trust  company,  organized  and  operating  under  the  laws  of  a 
State,  having  deposits,  capital,  surplus,  and  undivided  profits  aggregating 
more  than  $5,000,000,  shall  be  eligible  to  be  a  director  in  any  bank  or 
banking  association  organized  or  operating  under  the  laws  of  the  United 
States.  The  eligibility  of  a  director,  officer,  or  employee  under  the  fore- 
going provisions  shall  be  determined  by  the  average  amount  of  deposits, 
capital,  surplus,  and  undivided  profits  as  shown  in  the  official  statements  of 
such  bank,  banking  association,  or  trust  company  filed  as  provided  by  law 
during  the  fiscal  year  next  preceding  the  date  set  for  the  annual  election 
of  directors,  and  when  a  director,  officer,  or  employee  has  been  elected  or 
selected  in  accordance  with  the  provisions  of  this  Act  it  shall  be  lawful 
for  him  to  continue  as  such  for  one  year  thereafter  under  said  election  or 
employment. 

No  bank,  banking  association  or  trust  company,  organized  or  operat- 
ing under  the  laws  of  the  United  States,  in  any  city  or  incorporated  town 
or  village  of  more  than  two  hundred  thousand  inhabitants,  as  shown  by 
the  last  preceding  decennial  census  of  the  United  States,  shall  have  as  a 
director  or  other  officer  or  employee  any  private  banker  or  any  director 
or  other  officer  or  employee  of  any  other  bank,  banking  association  or  trust 
company  located  in  the  same  place:  Provided,  That  nothing  in  this  sec- 
tion shall  apply  to  mutual  savings  banks  not  having  a  capital  stock  rep- 
resented by  shares:  Provided  further,  That  a  director  or  other  officer  or 
employee  of  such  bank,  banking  association,  or  trust  company  may  be  a 
director  or  other  officer  or  employee  of  not  more  than  one  other  bank  or 
trust  company  organized  under  the  laws  of  the  United  States  or  any 
State  where  the  entire  capital  stock  of  one  is  owned  by  stockholders  in 
the  other:  And  provided  further,  That  nothing  contained  in  this  section 


APPENDICES  283 

shall  forbid  a  director  of  class  A  of  a  Federal  reserve  bank,  as  defined  in 
the  Federal  Reserve  Act  from  being  an  officer  or  director  or  both  an  officer 
and  director  in  one  member  bank. 

That  from  and  after  two  years  from  the  date  of  the  approval  of  this 
Act  no  person  at  the  same  time  shall  be  a  director  in  any  two  or  more 
corporations,  any  one  of  which  has  capital,  surplus,  and  undivided  profits 
aggregating  more  than  $1,000,000,  engaged  in  whole  or  in  part  in  com- 
merce, other  than  banks,  banking  associations,  trust  companies  and  com- 
mon carriers  subject  to  the  Act  to  regulate  commerce,  approved  February 
fourth,  eighteen  hundred  and  eighty-seven,  if  such  corporations  are  or 
shall  have  been  theretofore,  by  virtue  of  their  business  and  location  of 
operation,  competitors,  so  that  the  elimination  of  competition  by  agree- 
ment between  them  would  constitute  a  violation  of  any  of  the  provisions 
of  any  of  the  anti-trust  laws.  The  eligibility  of  a  director  under  the  fore- 
going provision  shall  be  determined  by  the  aggregate  amount  of  the  capital, 
surplus,  and  undivided  profits,  exclusive  of  dividends  declared  but  not  paid 
to  stockholders,  at  the  end  of  the  fiscal  year  of  said  corporation  next  pre- 
ceding the  election  of  directors,  and  when  a  director  has  been  elected  in 
accordance  with  the  provisions  of  this  Act  it  shall  be  lawful  for  him  to 
continue  as  such  for  one  year  thereafter. 

When  any  person  elected  or  chosen  as  a  director  or  officer  or  selected 
as  an  employee  of  any  bank  or  other  corporation  subject  to  the  provisions 
of  this  Act  is  eligible  at  the  time  of  his  election  or  selection  to  act  for  such 
bank  or  other  corporation  in  such  capacity  his  eligibility  to  act  in  such 
capacity  shall  not  be  affected  and  he  shall  not  become  or  be  deemed  amen- 
able to  any  of  the  provisions  hereof  by  reason  of  any  change  in  the  affairs 
of  such  bank  or  other  corporation  from  whatsoever  cause,  whether  specifi- 
cally excepted  by  any  of  the  provisions  hereof  or  not,  until  the  expiration 
of  one  year  from  the  date  of  his  election  or  employment. 

SEC.  9.  Every  president,  director,  officer  or  manager  of  any  firm,  asso- 
ciation or  corporation  engaged  in  commerce  as  a  common  carrier,  who 
embezzles,  steals,  abstracts  or  willfully  misapplies,  or  willfully  permits  to 
be  misapplied,  any  of  the  moneys,  funds,  credits,  securities,  property  or 
assets  of  such  firm,  association  or  corporation,  arising  or  accruing  from, 
or  used  in,  such  commerce,  in  whole  or  in  part,  or  willfully  or  knowingly 
converts  the  same  to  his  own  use  or  to  the  use  of  another,  shall  be  deemed 
guilty  of  a  felony  and  upon  conviction  shall  be  fined  not  less  than  $500 
or  confined  in  the  penitentiary  not  less  than  one  year  nor  more  than  ten 
years,  or  both,  in  the  discretion  of  the  court. 

Prosecutions  hereunder  may  be  in  the  district  court  of  the  United 
States  for  the  district  wherein  the  offense  may  have  been  committed. 

That  nothing  in  this  section  shall  be  held  to  take  away  or  impair  the 
jurisdiction  of  the  courts  of  the  several  States  under  the  laws  thereof; 
and  a  judgment  of  conviction  or  acquittal  on  the  merits  under  the  laws  of 
any  State  shall  be  a  bar  to  any  prosecution  hereunder  for  the  same 
act  or  acts. 


284  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

SEC.  10.  That  after  two  years  from  the  approval  of  this  Act  no  com- 
mon carrier  engaged  in  commerce  shall  have  any  dealings  in  securities, 
supplies  or  other  articles  of  commerce,  or  shall  make  or  have  any  contracts 
for  construction  or  maintenance  of  any  kind,  to  the  amount  of  more  than 
$50,000,  in  the  aggregate,  in  any  one  year,  with  another  corporation,  firm, 
partnership  or  association  when  the  said  common  carrier  shall  have  upon 
its  board  of  directors  or  as  its  president,  manager  or  as  its  purchasing  or 
selling  officer,  or  agent  in  the  particular  transaction,  any  person  who  is  at 
the  same  time  a  director,  manager  or  purchasing  or  selling  officer  of,  or 
who  has  any  substantial  interest  in,  such  other  corporation,  firm,  partner- 
ship or  association,  unless  and  except  such  purchases  shall  be  made  from, 
or  such  dealings  shall  be  with,  the  bidder  whose  bid  is  the  most  favorable 
to  such  common  carrier,  to  be  ascertained  by  competitive  bidding  under 
regulations  to  be  prescribed  by  rule  or  otherwise  by  the  Interstate  Com- 
merce Commission.  No  bid  shall  be  received  unless  the  name  and  address 
of  the  bidder  or  the  names  and  addresses  of  the  officers,  directors  and  gen- 
eral managers  thereof,  if  the  bidder  be  a  corporation,  or  of  the  members, 
if  it  be  a  partnership  or  firm,  be  given  with  the  bid. 

Any  person  who  shall,  directly  or  indirectly,  do  or  attempt  to  do 
anything  to  prevent  anyone  from  bidding  or  shall  do  any  act  to  prevent 
free  and  fair  competition  among  the  bidders  or  those  desiring  to  bid  shall 
be  punished  as  prescribed  in  this  section  in  the  case  of  an  officer  or 
director. 

Every  such  common  carrier  having  any  such  transactions  or  making 
any  such  purchases  shall  within  thirty  days  after  making  the  same  file  with 
the  Interstate  Commerce  Commission  a  full  and  detailed  statement  of  the 
transaction  showing  the  manner  of  the  competitive  bidding,  who  were 
the  bidders,  and  the  names  and  addresses  of  the  directors  and  officers  of 
the  corporations  and  the  members  of  the  firm  or  partnership  bidding;  and 
whenever  the  said  commission  shall,  after  investigation  or  hearing,  have 
reason  to  believe  that  the  law  has  been  violated  in  and  about  the  said 
purchases  or  transactions  it  shall  transmit  all  papers  and  documents  and 
its  own  views  or  findings  regarding  the  transaction  to  the  Attorney  Gen- 
eral. 

If  any  common  carrier  shall  violate  this  section  it  shall  be  fined  not 
exceeding  $25,000;  and  every  such  director,  agent,  manager  or  officer 
thereof  who  shall  have  knowingly  voted  for  or  directed  the  act  con- 
stituting such  violation  or  who  shall  have  aided  or  abetted  in  such 
violation  shall  be  deemed  guilty  of  a  misdemeanor  and  shall  be  fined  not 
exceeding  $5,000,  or  confined  in  jail  not  exceeding  one  year,  or  both,  in  the 
discretion  of  the  court. 

SEC.  11.  That  authority  to  enforce  compliance  with  sections  two, 
three,  seven  and  eight  of  this  Act  by  the  persons  respectively  subject 
thereto  is  hereby  vested:  in  the  Interstate  Commerce  Commission  where 
applicable  to  common  carriers,  in  the  Federal  Reserve  Board  where  ap- 
plicable to  banks,  banking  associations  and  trust  companies,  and  in  the 


APPENDICES  285 

Federal  Trade  Commission  where  applicable  to  all  other  character  of 
commerce,  to  be  exercised  as  follows: 

Whenever  the  commission  or  board  vested  with  jurisdiction  thereof 
shall  have  reason  to  believe  that  any  person  is  violating  or  has  violated 
any  of  the  provisions  of  sections  two,  three,  seven  and  eight  of  this  Act, 
it  shall  issue  and  serve  upon  such  person  a  complaint  stating  its  charges 
in  that  respect,  and  containing  a  notice  of  a  hearing  upon  a  day  and  at 
a  place  therein  fixed  at  least  thirty  days  after  the  service  of  said  com- 
plaint. The  person  so  complained  of  shall  have  the  right  to  appear  at  the 
place  and  time  so  fixed  and  show  cause  why  an  order  should  not  be 
entered  by  the  commission  or  board  requiring  such  person  to  cease  and 
desist  from  the  violation  of  the  law  so  charged  in  said  complaint.  Any 
person  may  make  application,  and  upon  good  cause  shown  may  be  allowed 
by  the  commission  or  board,  to  intervene  and  appear  in  said  proceeding 
by  counsel  or  in  person.  The  testimony  in  any  such  proceeding  shall  be 
reduced  to  writing  and  filed  in  the  office  of  the  commission  or  board.  If 
upon  such  hearing  the  commission  or  board,  as  the  case  may  be,  shall 
be  of  the  opinion  that  any  of  the  provisions  of  said  sections  have  been  or 
are  being  violated,  it  shall  make  a  report  in  writing  in  which  it  shall 
state  its  findings  as  to  the  facts,  and  shall  issue  and  cause  to  be  served 
on  such  person  an  order  requiring  such  person  to  cease  and  desist  from 
such  violations,  and  divest  itself  of  the  stock  held  or  rid  itself  of  the 
directors  chosen  contrary  to  the  provisions  of  sections  seven  and  eight  of 
this  Act,  if  any  there  be,  in  the  manner  and  within  the  time  fixed  by  said 
order.  Until  a  transcript  of  the  record  in  such  hearing  shall  have  been 
filed  in  a  circuit  court  of  appeals  of  the  United  States,  as  hereinafter 
provided,  the  commission  or  board  may  at  any  time,  upon  such  notice 
and  in  such  manner  as  it  shall  deem  proper,  modify  or  set  aside,  in  whole 
or  in  part,  any  report  or  any  order  made  or  issued  by  it  under  this 
section. 

If  such  person  fails  or  neglects  to  obey  such  order  of  the  commission 
or  board  while  the  same  is  in  effect,  the  commission  or  board  may  apply 
to  the  circuit  court  of  appeals  of  the  United  States,  within  any  circuit 
where  the  violation  complained  of  was  or  is  being  committed  or  where  such 
person  resides  or  carries  on  business,  for  the  enforcement  of  its  order,  and 
shall  certify  and  file  with  its  application  a  transcript  of  the  entire  record 
in  the  proceeding,  including  all  the  testimony  taken  and  the  report  and 
order  of  the  commission  or  board.  Upon  such  filing  of  the  application  and 
transcript  the  court  shall  cause  notice  thereof  to  be  served  upon  such 
person  and  thereupon  shall  have  jurisdiction  of  the  proceeding  and  of  the 
question  determined  therein,  and  shall  have  power  to  make  and  enter  upon 
the  pleadings,  testimony,  and  proceedings  set  forth  in  such  transcript  a 
decree  affirming,  modifying,  or  setting  aside  the  order  of  the  commission 
or  board.  The  findings  of  the  commission  or  board  as  to  the  facts,  if 
supported  by  testimony,  shall  be  conclusive.  If  either  party  shall  apply 
to  the  court  for  leave  to  adduce  additional  evidence,  and  shall  show  to 


286  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  satisfaction  of  the  court  that  such  additional  evidence  is  material 
and  that  there  were  reasonable  grounds  for  the  failure  to  adduce  such 
evidence  in  the  proceeding  before  the  commission  or  board,  the  court  may 
order  such  additional  evidence  to  be  taken  before  the  commission  or  board 
and  to  be  adduced  upon  the  hearing  in  such  manner  and  upon  such  terms 
and  conditions  as  to  the  court  may  seem  proper.  The  commission  or 
board  may  modify  its  findings  as  to  the  facts,  or  make  new  findings,  by 
reason  of  the  additional  evidence  so  taken,  and  it  shall  file  such  modified 
or  new  findings,  which,  if  supported  by  testimony,  shall  be  conclusive,  and 
its  recommendation,  if  any,  for  the  modification  or  setting  aside  of  its 
original  order,  with  the  return  of  such  additional  evidence.  The  judg- 
ment and  decree  of  the  court  shall  be  final,  except  that  the  same  shall  be 
subject  to  review  by  the  Supreme  Court  upon  certiorari  as  provided  in 
section  two  hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  or  board  to 
cease  and  desist  from  a  violation  charged  may  obtain  a  review  of  such 
order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a  written  peti- 
tion praying  that  the  order  of  the  commission  or  board  be  set  aside.  A 
copy  of  such  petition  shall  be  forthwith  served  upon  the  commission  or 
board,  and  thereupon  the  commission  or  board  forthwith  shall  certify  and 
file  in  the  court  a  transcript  of  the  record  as  hereinbefore  provided.  Upon 
the  filing  of  the  transcript  the  court  shall  have  the  same  jurisdiction  to 
affirm,  set  aside,  or  modify  the  order  of  the  commission  or  board  as  in  the 
case  of  an  application  by  the  commission  or  board  for  the  enforcement  of 
its  order,  and  the  findings  of  the  commission  or  board  as  to  the  facts,  if 
supported  by  testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States  to 
enforce,  set  aside,  or  modify  orders  of  the  commission  or  board  shall  be 
exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given  prece- 
dence over  other  cases  pending  therein,  and  shall  be  in  every  way  ex- 
pedited. No  order  of  the  commission  or  board  or  the  judgment  of  the 
court  to  enforce  the  same  shall  in  any  wise  relieve  or  absolve  any  person 
from  any  liability  under  the  anti-trust  Acts. 

Complaints,  orders,  and  other  processes  of  the  commission  or  board 
under  this  section  may  be  served  by  anyone  duly  authorized  by  the  com- 
mission or  board,  either  (a)  by  delivering  a  copy  thereof  to  the  person  to 
be  served,  or  to  a  member  of  the  partnership  to  be  served,  or  to  the 
president,  secretary,  or  other  executive  officer  or  a  director  of  the  cor- 
poration to  be  served;  or  (b)  by  leaving  a  copy  thereof  at  the  principal 
office  or  place  of  business  of  such  persons;  or  (c)  by  registering  and  mail- 
ing a  copy  thereof  addressed  to  such  person  at  his  principal  office  or 
place  of  business.  The  verified  return  by  the  person  so  serving  said  com- 
plaint, order,  or  other  process  setting  forth  the  manner  of  said  service 
shall  be  proof  of  the  same,  and  the  return  post-office  receipt  for  said  com- 


APPENDICES  287 

plaint,  order,  or  other  process  registered  and  mailed  as  aforesaid  shall  be 
proof  of  the  service  of  the  same. 

SEC.  12.  That  any  suit,  action,  or  proceeding  under  the  anti-trust 
laws  against  a  corporation  may  be  brought  not  only  in  the  judicial  dis- 
trict whereof  it  is  an  inhabitant,  but  also  in  any  district  wherein  it  may 
be  found  or  transacts  business ;  and  all  process  in  such  cases  may  be  served 
in  the  district  of  which  it  is  an  inhabitant,  or  wherever  it  may  be  found. 

SEC.  13.  That  in  any  suit,  action,  or  proceeding  brought  by  or  on  be- 
half of  the  United  States  subpoenas  for  witnesses  who  are  required  to 
attend  a  court  of  the  United  States  in  any  judicial  district  in  any  case, 
civil  or  criminal,  arising  under  the  anti-trust  laws  may  run  into  any 
other  district:  Provided,  That  in  civil  cases  no  writ  of  subpoena  shall  issue 
for  witnesses  living  out  of  the  district  in  which  the  court  is  held  at  a 
greater  distance  than  one  hundred  miles  from  the  place  of  holding  the 
same  without  the  permission  of  the  trial  court  being  first  had  upon  proper 
application  and  cause  shown. 

SEC.  14.  That  whenever  a  corporation  shall  violate  any  of  the  penal 
provisions  of  the  anti-trust  laws,  such  violation  shall  be  deemed  to  be 
also  that  of  the  individual  directors,  officers,  or  agents  of  such  corpora- 
tion who  shall  have  authorized,  ordered,  or  done  any  of  the  acts  constituting 
in  whole  or  in  part  such  violation,  and  such  violation  shall  be  deemed  a 
misdemeanor,  and  upon  conviction  therefor  of  any  such  director,  officer,  or 
agent  he  shall  be  punished  by  a  fine  of  not  exceeding  $5,000  or  by  im- 
prisonment for  not  exceeding  one  year,  or  by  both,  in  the  discretion  of 
the  court. 

SEC.  15.  That  the  several  district  courts  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  violations  of 
this  Act,  and  it  shall  be  the  duty  of  the  several  district  attorneys  of  the 
United  States,  in  their  respective  districts,  under  the  direction  of  the  At- 
torney General,  to  institute  proceedings  in  equity  to  prevent  and  restrain 
such  violations.  Such  proceedings  may  be  by  way  of  petition  setting  forth 
the  case  and  praying  that  such  violation  shall  be  enjoined  or  otherwise 
prohibited.  When  the  parties  complained  of  shall  have  been  duly  notified 
of  such  petition,  the  court  shall  proceed,  as  soon  as  may  be,  to  the 
hearing  and  determination  of  the  case;  and  pending  such  petition,  and 
before  final  decree,  the  court  may  at  any  time  make  such  temporary  re- 
straining order  or  prohibition  as  shall  be  deemed  just  in  the  premises. 
Whenever  it  shall  appear  to  the  court  before  which  any  such  proceeding 
may  be  pending  that  the  ends  of  justice  require  that  other  parties  should 
be  brought  before  the  court,  the  court  may  cause  them  to  be  summoned 
whether  they  reside  in  the  district  in  which  the  court  is  held  or  not,  and 
subpoenas  to  that  end  may  be  served  in  any  district  by  the  marshal 
thereof. 

SEC.  16.  That  any  person,  firm,  corporation,  or  association  shall  be 
entitled  to  sue  for  and  have  injunctive  relief,  in  any  court  of  the  United 


288  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

States  having  jurisdiction  over  the  parties,  against  threatened  loss  or  dam- 
age by  a  violation  of  the  anti-trust  laws,  including  sections  two,  three, 
seven  and  eight  of  this  Act,  when  and  under  the  same  conditions  and 
principles  as  injunctive  relief  against  threatened  conduct  that  will  cause 
loss  or  damage  is  granted  by  courts  of  equity,  under  the  rules  governing 
such  proceedings,  and  upon  the  execution  of  proper  bond  against  damages 
for  an  injunction  improvidently  granted  and  a  showing  that  the  danger 
of  irreparable  loss  or  damage  is  immediate,  a  preliminary  injunction  may 
issue:  Provided,  That  nothing  herein  contained  shall  be  construed  to  entitle 
any  person,  firm,  corporation,  or  association,  except  the  United  States,  to 
bring  suit  in  equity  for  injunctive  relief  against  any  common  carrier  sub- 
ject to  the  provisions  of  the  Act  to  regulate  commerce,  approved  Febru- 
ary fourth,  eighteen  hundred  and  eighty-seven,  in  respect  of  any  matter 
subject  to  the  regulation,  supervision,  or  other  jurisdiction  of  the  Inter- 
state Commerce  Commission. 

SEC.  17.  That  no  preliminary  injunction  shall  be  issued  without 
notice  to  the  opposite  party. 

No  temporary  restraining  order  shall  be  granted  without  notice  to  the 
opposite  party  unless  it  shall  clearly  appear  from  specific  facts  shown 
by  affidavit  or  by  the  verified  bill  that  immediate  and  irreparable  injury, 
loss,  or  damage  will  result  to  the  applicant  before  notice  can  be  served 
and  a  hearing  had  thereon.  Every  such  temporary  restraining  order  shall 
be  indorsed  with  the  date  and  hour  of  issuance,  shall  be  forthwith  filed 
in  the  clerk's  office  and  entered  of  record,  shall  define  the  injury  and 
state  why  it  is  irreparable  and  why  the  order  was  granted  without  notice, 
and  shall  by  its  terms  expire  within  such  time  after  entry,  not  to  exceed 
ten  days,  as  the  court  or  judge  may  fix,  unless  within  the  time  so  fixed 
the  order  is  extended  for  a  like  period  for  good  cause  shown,  and  the 
reasons  for  such  extension  shall  be  entered  of  record.  In  case  a  tempo- 
rary restraining  order  shall  be  granted  without  notice  in  the  contingency 
specified,  the  matter  of  the  issuance  of  a  preliminary  injunction  shall  be 
set  down  for  a  hearing  at  the  earliest  possible  time  and  shall  take  prece- 
dence of  all  matters  except  older  matters  of  the  same  character;  and  when 
the  same  comes  up  for  hearing  the  party  obtaining  the  temporary  re- 
straining order  shall  proceed  with  the  application  for  a  preliminary  in- 
junction, and  if  he  does  not  do  so  the  court  shall  dissolve  the  temporary 
restraining  order.  Upon  two  days'  notice  to  the  party  obtaining  such 
temporary  restraining  order  the  opposite  party  may  appear  and  move 
the  dissolution  or  modification  of  the  order,  and  in  that  event  the  court 
or  judge  shall  proceed  to  hear  and  determine  the  motion  as  expeditiously 
as  the  ends  of  justice  may  require. 

Section  two  hundred  and  sixty-three  of  an  Act  entitled  "An  Act  to 
codify,  revise,  and  amend  the  laws  relating  to  the  judiciary,"  approved 
March  third,  nineteen  hundred  and  eleven,  is  hereby  repealed. 

Nothing  in  this  section  contained  shall  be  deemed  to  alter,  repeal,  or 
amend  section  two  hundred  and  sixty-six  of  an  Act  entitled  "An  Act  to 


APPENDICES  289 

codify,  revise,  and  amend  the  laws  relating  to  the  judiciary,"  approved 
March  third,  nineteen  hundred  and  eleven. 

SEC.  18.  That,  except  as  otherwise  provided  in  section  16  of  this 
Act,  no  restraining  order  or  interlocutory  order  of  injunction  shall  issue, 
except  upon  the  giving  of  security  by  the  applicant  in  such  sum  as  the 
court  or  judge  may  deem  proper,  conditioned  upon  the  payment  of  such 
costs  and  damages  as  may  be  incurred  or  suffered  by  any  party  who  may  be 
found  to  have  been  wrongfully  enjoined  or  restrained  thereby. 

SEC.  19.  That  every  order  of  injunction  or  restraining  order  shall  set 
forth  the  reasons  for  the  issuance  of  the  same,  shall  be  specific  in  terms, 
and  shall  describe  in  reasonable  detail,  and  not  by  reference  to  the  bill 
of  complaint  or  other  document,  the  act  or  acts  sought  to  be  restrained, 
and  shall  be  binding  only  upon  the  parties  to  the  suit,  their  officers,  agents, 
servants,  employees,  and  attorneys,  or  those  in  active  concert  or  partici- 
pating with  them,  and  who  shall,  by  personal  service  or  otherwise,  have 
received  actual  notice  of  the  same. 

SEC.  20.  That  no  restraining  order  or  injunction  shall  be  granted  by 
any  court  of,. the  United  States,  or  a  judge  or  the  judges  thereof,  in  any 
case  between  an  employer  and  employees,  or  between  employers  and  em- 
ployees, or  between  employees,  or  between  persons  employed  and  persons 
seeking  employment,  involving,  or  growing  out  of,  a  dispute  concerning 
terms  or  conditions  of  employment,  unless  necessary  to  prevent  irreparable 
injury  to  property,  or  to  a  property  right,  of  the  party  making  the  appli- 
cation, for  which  injury  there  is  no  adequate  remedy  at  law,  and  such 
property  or  property  right  must  be  described  with  particularity  in  the 
application,  which  must  be  in  writing  and  sworn  to  by  the  applicant  or 
by  his  agent  or  attorney. 

And  no  such  restraining  order  or  injunction  shall  prohibit  any  per- 
son or  persons,  whether  singly  or  in  concert,  from  terminating  any  rela- 
tion of  employment,  or  from  ceasing  to  perform  any  work  or  labor,  or  from 
recommending,  advising,  or  persuading  others  by  peaceful  means  so  to  do; 
or  from  attending  at  any  place  where  any  such  person  or  persons  may 
lawfully  be,  for  the  purpose  of  peacefully  obtaining  or  communicating  in- 
formation, or  from  peacefully  persuading  any  person  to  work  or  to  abstain 
from  working;  or  from  ceasing  to  patronize  or  to  employ  any  party  to 
such  dispute,  or  from  recommending,  advising,  or  persuading  others  by 
peaceful  and  lawful  means  so  to  do;  or  from  paying  or  giving  to,  or 
withholding  from,  any  person  engaged  in  such  dispute,  any  strike  benefits  or 
other  moneys  or  things  of  value;  or  from  peaceably  assembling  in  a  law- 
ful manner,  and  for  lawful  purposes;  or  from  doing  any  act  or  thing 
which  might  lawfully  be  done  in  the  absence  of  such  dispute  by  any  party 
thereto;  nor  shall  any  of  the  acts  specified  in  this  paragraph  be  considered 
or  held  to  be  violations  of  any  law  of  the  United  States. 

SEC.  21.  That  any  person  who  shall  willfully  disobey  any  lawful 
writ,  process,  order,  rule,  decree,  or  command  of  any  district  court  of  the 
United  States  or  any  court  of  the  District  of  Columbia  by  doing  any  act 


290  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

or  thing  therein,  or  thereby  forbidden  to  be  done  by  him,  if  the  act  or 
thing  so  done  by  him  be  of  such  character  as  to  constitute  also  a  criminal 
offense  under  any  statute  of  the  United  States,  or  under  the  laws  of  any 
State  in  which  the  act  was  committed,  shall  be  proceeded  against  for  his 
said  contempt  as  hereinafter  provided. 

SEC.  22.  That  whenever  it  shall  be  made  to  appear  to  any  district 
court  or  judge  thereof,  or  to  any  judge  therein  sitting,  by  the  return  of  a 
proper  officer  on  lawful  process,  or  upon  the  affidavit  of  some  credible 
person,  or  by  information  filed  by  any  district  attorney,  that  there  is 
reasonable  ground  to  believe  that  any  person  has  been  guilty  of  such  con- 
tempt, the  court  or  judge  thereof,  or  any  judge  therein  sitting,  may  issue 
a  rule  requiring  the  said  person  so  charged  to  show  cause  upon  a  day 
certain  why  he  should  not  be  punished  therefor,  which  rule,  together  with 
a  copy  of  the  affidavit  or  information,  shall  be  served  upon  the  person 
charged,  with  sufficient  promptness  to  enable  him  to  prepare  for  and 
make  return  to  the  order  at  the  time  fixed  therein.  If  upon  or  by  such 
return,  in  the  judgment  of  the  court,  the  alleged  contempt  be  not  suffi- 
ciently purged,  a  trial  shall  be  directed  at  a  time  and  place  fixed  by 
the  court:  Provided,  however,  That  if  the  accused,  being  a  natural  person, 
fail  or  refuse  to  make  return  to  the  rule  to  show  cause,  an  attachment 
may  issue  against  his  person  to  compel  an  answer,  and  in  case  of  his 
continued  failure  or  refusal,  or  if  for  any  reason  it  be  impracticable  to 
dispose  of  the  matter  on  the  return  day,  he  may  be  required  to  give 
reasonable  bail  for  his  attendance  at  the  trial  and  his  submission  to  the 
final  judgment  of  the  court.  Where  the  accused  is  a  body  corporate,  an 
attachment  for  the  sequestration  of  its  property  may  be  issued  upon  like 
refusal  or  failure  to  answer. 

In  all  cases  within  the  purview  of  this  Act  such  trial  may  be  by  the 
court,  or,  upon  demand  of  the  accused,  by  a  jury;  in  which  latter  event 
the  court  may  impanel  a  jury  from  the  jurors  then  in  attendance,  or 
the  court  or  the  judge  thereof  in  chambers  may  cause  a  sufficient  number 
of  jurors  to  be  selected  and  summoned,  as  provided  by  law,  to  attend  at  the 
time  and  place  of  trial,  at  which  time  a  jury  shall  be  selected  and  im- 
paneled as  upon  a  trial  for  misdemeanor;  and  such  trial  shall  conform,  as 
near  as  may  be,  to  the  practice  in  criminal  cases  prosecuted  by  indictment 
or  upon  information. 

If  the  accused  be  found  guilty,  judgment  shall  be  entered  accordingly, 
prescribing  the  punishment,  either  by  fine  or  imprisonment,  or  both,  in  the 
discretion  of  the  court.  Such  fine  shall  be  paid  to  the  United  States  or 
to  the  complainant  or  other  party  injured  by  the  act  constituting  the 
contempt,  or  may,  where  more  than  one  is  so  damaged,  be  divided  or 
apportioned  among  them  as  the  court  may  direct,  but  in  no  case  shall  the 
fine  to  be  paid  to  the  United  States  exceed,  in  case  the  accused  is  a  natural 
person,  the  sum  of  $1,000,  nor  shall  such  imprisonment  exceed  the  term  of 
six  months:  Provided,  That  in  any  case  the  court  or  a  judge  thereof  may, 
for  good  cause  shown,  by  affidavit  or  proof  taken  in  open  court  or  before 


APPENDICES  291 

such  judge  and  filed  with  the  papers  in  the  case,  dispense  with  the  rule 
to  show  cause,  and  may  issue  an  attachment  for  the  arrest  of  the  person 
charged  with  contempt;  in  which  event  such  person,  when  arrested,  shall 
be  brought  before  such  court  or  a  judge  thereof  without  unnecessary 
delay  and  shall  be  admitted  to  bail  in  a  reasonable  penalty  for  his  ap- 
pearance to  answer  to  the  charge  or  for  trial  for  the  contempt;  and 
thereafter  the  proceedings  shall  be  the  same  as  provided  herein  in  case 
the  rule  had  issued  in  the  first  instance. 

SEC.  23.  That  the  evidence  taken  upon  the  trial  of  any  persons  so 
accused  may  be  preserved  by  bill  of  exceptions,  and  any  judgment  of  con- 
viction may  be  reviewed  upon  writ  of  error  in  all  respects  as  now  provided 
by  law  in  criminal  cases,  and  may  be  affirmed,  reversed,  or  modified  as 
justice  may  require.  Upon  the  granting  of  such  writ  of  error,  execution 
of  judgment  shall  be  stayed,  and  the  accused,  if  thereby  sentenced  to  im- 
prisonment, shall  be  admitted  to  bail  in  such  reasonable  sum  as  may  be 
required  by  the  court,  or  by  any  justice,  or  any  judge  of  any  district  court 
of  the  United  States  or  any  court  of  the  District  of  Columbia. 

SEC.  24.  That  nothing  herein  contained  shall  be  construed  to  relate 
to  contempts  committed  in  the  presence  of  the  court,  or  so  near  thereto 
as  to  obstruct  the  administration  of  justice,  nor  to  contempts  committed 
in  disobedience  of  any  lawful  writ,  process,  order,  rule,  decree  or  com- 
mand entered  in  any  suit  or  action  brought  or  prosecuted  in  the  name  of, 
or  on  behalf  of,  the  United  States,  but  the  same,  and  all  other  cases  of 
contempt  not  specifically  embraced  within  section  twenty-one  of  this  Act, 
may  be  punished  in  conformity  to  the  usages  at  law  and  in  equity  now 
prevailing. 

SEC.  25.  That  no  proceeding  for  contempt  shall  be  instituted  against 
any  person  unless  begun  within  one  year  from  the  date  of  the  act  com- 
plained of;  nor  shall  any  such  proceeding  be  a  bar  to  any  criminal  prose- 
cution for  the  same  act  or  acts;  but  nothing  herein  contained  shall  affect 
any  proceedings  in  contempt  pending  at  the  time  of  the  passage  of  this 
Act. 

SEC.  26.  If  any  clause,  sentence,  pargaraph,  or  part  of  this  Act  shall, 
for  any  reason,  be  adjudged  by  any  court  of  competent  jurisdiction  to  be 
invalid,  such  judgment  shall  not  affect,  impair,  or  invalidate  the  remainder 
thereof,  but  shall  be  confined  in  its  operation  to  the  clause,  sentence,  para- 
graph, or  part  thereof  directly  involved  in  the  controversy  in  which  such 
judgment  shall  have  been  rendered. 

Approved,  October  15,  1914. 


APPENDIX  C 

WEBB  EXPORT  ACT 

[Act  of  April  10,  1918   (40  Stat.  516).] 

AN  ACT  To  promote  export  trade,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  the  words  "export  trade" 
wherever  used  in  this  Act  mean  solely  trade  or  commerce  in  goods,  wares, 
or  merchandise  exported,  or  in  the  course  of  being  exported  from  the 
United  States  or  any  Territory  thereof  to  any  foreign  nation;  but  the 
words  "export  trade"  shall  not  be  deemed  to  include  the  production,  manu- 
facture, or  selling  for  consumption  or  for  resale,  within  the  United  States 
or  any  Territory  thereof,  of  such  goods,  wares,  or  merchandise,  or  any 
act  in  the  course  of  such  production,  manufacture,  or  selling  for  consump- 
tion or  for  resale. 

That  the  words  "trade  within  the  United  States"  wherever  used  in 
this  Act  mean  trade  or  commerce  among  the  several  States  or  in  any 
Territory  of  the  United  States,  or  in  the  District  of  Columbia,  or  between 
any  such  Territory  and  another,  or  between  any  such  Territory  or  Terri- 
tories and  any  State  or  States  or  the  District  of  Columbia,  or  between 
the  District  of  Columbia  and  any  State  or  States. 

That  the  word  "association"  wherever  used  in  this  Act  means  any 
corporation  or  combination,  by  contract  or  otherwise,  of  two  or  more 
persons,  partnerships,  or  corporations. 

SEC.  2.  That  nothing  contained  in  the  Act  entitled  "An  Act  to  pro- 
tect trade  and  commerce  against  unlawful  restraints  and  monopolies,"  ap- 
proved July  second,  eighteen  hundred  and  ninety,  shall  be  construed  as 
declaring  to  be  illegal  an  association  entered  into  for  the  sole  purpose  of 
engaging  in  export  trade  and  actually  engaged  solely  in  such  export  trade, 
or  an  agreement  made  or  act  done  in  the  course  of  export  trade  by  such 
association,  provided  such  association,  agreement,  or  act  is  not  in  re- 
straint of  trade  within  the  United  States,  and  is  not  in  restraint  of  the 
export  trade  of  any  domestic  competitor  of  such  association:  And  pro- 
vided further,  "That  such  association  does  not,  either  in  the  United  States 
or  elsewhere,  enter  into  any  agreement,  understanding,  or  conspiracy,  or  do 
any  act  which  artificially  or  intentionally  enhances  or  depresses  prices 
within  the  United  States  of  commodities  of  the  class  exported  by  such  asso- 
ciation, or  which  substantially  lessens  competition  within  the  United 
States  or  otherwise  restrains  trade  therein. 

292 


APPENDICES  293 

SEC.  3.  That  nothing  contained  in  section  seven  of  the  Act  entitled 
"An  Act  to  supplement  existing  laws  against  unlawful  restraints  and 
monopolies,  and  for  other  purposes,"  approved  October  fifteenth,  nineteen 
hundred  and  fourteen,  shall  be  construed  to  forbid  the  acquisition  or  owner- 
ship by  any  corporation  of  the  whole  or  any  part  of  the  stock  or  other 
capital  of  any  corporation  organized  solely  for  the  purpose  of  engaging  in 
export  trade,  and  actually  engaged  solely  in  such  export  trade,  unless  the 
effect  of  such  acquisition  or  ownership  may  be  to  restrain  trade  or  sub- 
stantially lessen  competition  within  the  United  States. 

SEC.  4.  That  the  prohibition  against  "unfair  methods  of  competition" 
and  the  remedies  provided  for  enforcing  said  prohibition  contained  in  the 
Act  entitled  "An  Act  to  create  a  Federal  Trade  Commission,  to  define  its 
powers  and  duties,  and  for  other  purposes,"  approved  September  twenty- 
sixth,  nineteen  hundred  and  fourteen,  shall  be  construed  as  extending  to 
unfair  methods  of  competition  used  in  export  trade  against  competitors 
engaged  in  export  trade,  even  though  the  acts  constituting  such  unfair 
methods  are  done  without  the  territorial  jurisdiction  of  the  United  States. 

SEC.  5.  That  every  association  now  engaged  solely  in  export  trade, 
within  sixty  days  after  the  passage  of  this  Act,  and  every  association  en- 
tered into  hereafter  which  engages  solely  in  export  trade,  within  thirty 
days  after  its  creation,  shall  file  with  the  Federal  Trade  Commission  a  veri- 
fied written  statement  setting  forth  the  location  of  its  offices  or  places  of 
business  and  the  names  and  addresses  of  all  its  officers  and  of  all  its  stock- 
holders or  members,  and  if  a  corporation,  a  copy  of  its  certificate  or 
articles  of  incorporation  and  by-laws,  and  if  unincorporated,  a  copy  of  its 
articles  or  contract  of  association,  and  on  the  first  day  of  January  of 
each  year  thereafter  it  shall  make  a  like  statement  of  the  location  of  its 
offices  or  places  of  business  and  the  names  and  addresses  of  all  its 
officers  and  of  all  its  stockholders  or  members  and  of  all  amendments  to 
and  changes  in  its  articles  or  certificate  of  incorporation  or  in  its  articles 
or  contract  of  association.  It  shall  also  furnish  to  the  commission  such 
information  as  the  commission  may  require  as  to  its  organization,  business, 
conduct,  practices,  management,  and  relation  to  other  associations,  cor- 
porations, partnerships,  and  individuals.  Any  association  which  shall  fail 
so  to  do  shall  not  have  the  benefit  of  the  provisions  of  section  two  and 
section  three  of  this  Act,  and  it  shall  also  forfeit  to  the  United  States 
the  sum  of  $100  for  each  and  every  day  of  the  continuance  of  such  failure, 
which  forfeiture  shall  be  payable  into  the  Treasury  of  the  United  States, 
and  shall  be  recoverable  in  a  civil  suit  in  the  name  of  the  United  States 
brought  in  the  district  where  the  association  has  its  principal  office,  or  in 
any  district  in  which  it  shall  do  business.  It  shall  be  the  duty  of  the  vari- 
ous district  attorneys,  under  the  direction  of  the  Attorney  General  of  the 
United  States,  to  prosecute  for  the  recovery  of  the  forfeiture.  The  costs 
and  expenses  of  such  prosecution  shall  be  paid  out  of  the  appropriation 
for  the  expenses  of  the  courts  of  the  United  States. 

Whenever  the  Federal  Trade  Commission  shall  have  reason  to  believe 


294  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

that  an  association  or  any  agreement  made  or  act  done  by  such  associa- 
tion is  in  restraint  of  trade  within  the  United  States  or  in  restraint  of 
the  export  trade  of  any  domestic  competitor  of  such  association,  or  that 
an  association  either  in  the  United  States  or  elsewhere  has  entered  into 
any  agreement,  understanding,  or  conspiracy,  or  done  any  act  which  arti- 
ficially or  intentionally  enhances  or  depresses  prices  within  the  United 
States  of  commodities  of  the  class  exported  by  such  association,  or  which 
substantially  lessens  competition  within  the  United  States  or  otherwise 
restrains  trade  therein,  it  shall  summon  such  association,  its  officers, 
and  agents  to  appear  before  it,  and  thereafter  conduct  an  investigation  into 
the  alleged  violations  of  law.  Upon  investigation,  if  it  shall  conclude  that 
the  law  has  been  violated,  it  may  make  to  such  association  recommenda- 
tions for  the  readjustment  of  its  business,  in  order  that  it  may  thereafter 
maintain  its  organization  and  management  and  conduct  its  business  in 
accordance  with  law.  If  such  association  fails  to  comply  with  the  recom- 
mendations of  the  Federal  Trade  Commission,  said  commission  shall  refer 
its  findings  and  recommendations  to  the  Attorney  General  of  the  United 
States  for  such  action  thereon  as  he  may  deem  proper. 

For  the  purpose  of  enforcing  these  provisions  the  Federal  Trade  Com- 
mission shall  have  all  the  powers,  so  far  as  applicable,  given  it  in  "An 
Act  to  create  a  Federal  Trade  Commission,  to  define  its  powers  and  duties, 
and  for  other  purposes." 

Approved,  April  10,  1918. 


APPENDIX  D 
CAPPER-VOLSTEAD  ACT 

[Act  of  February  18,  1922.] 
AN  ACT  To  authorize  association  of  producers  of  agricultural  products. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  persons  engaged  in  the  pro- 
duction of  agricultural  products  as  farmers,  planters,  ranchmen,  dairymen, 
nut  or  fruit  growers  may  act  together  in  associations,  corporate  or  other- 
wise, with  or  without  capital  stock,  in  collectively  processing,  preparing 
for  market,  handling,  and  marketing  in  inter-state  and  foreign  commerce, 
such  products  of  persons  so  engaged.  Such  associations  may  have  market- 
ing agencies  in  common;  and  such  associations  and  their  members  may 
make  the  necessary  contracts  and  agreements  to  effect  such  purposes:  Pro- 
vided, however,  That  such  associations  are  operated  for  the  mutual  benefit 
of  the  members  thereof,  as  such  producers,  and  conform  to  one  or  both  of 
the  following  requirements: 

First.  That  no  member  of  the  association  is  allowed  more  than  one 
vote  because  of  the  amount  of  stock  or  membership  capital  he  may  own 
therein,  or, 

Second,  That  the  association  does  not  pay  dividends  on  stock  or  mem- 
bership capital  in  excess  of  8  per  centum  per  annum. 

And  in  any  case  to  the  following: 

Third.  That  the  association  shall  not  deal  in  the  products  of  non- 
members  to  an  amount  greater  in  value  than  such  as  are  handled  by  it 
for  members. 

SEC.  2.  That  if  the  Secretary  of  Agriculture  shall  have  reason  to  be- 
lieve that  any  such  association  monopolizes  or  restrains  trade  in  inter- 
state or  foreign  commerce  to  such  an  extent  that  the  price  of  any  agricul- 
tural product  is  unduly  enhanced  by  reason  thereof,  he  shall  serve  upon 
such  association  a  complaint  stating  his  charge  in  that  respect,  to  which 
complaint  shall  be  attached,  or  contained  therein,  a  notice  of  hearing,  speci- 
fying a  day  and  place  not  less  than  thirty  days  after  the  service  thereof, 
requiring  the  association  to  show  cause  why  an  order  should  not  be  made 
directing  it  to  cease  and  desist  from  monopolization  or  restraint  of  trade. 
An  association  so  complained  of  may  at  the  time  and  place  so  fixed  show 
cause  why  such  order  should  not  be  entered.  The  evidence  given  on  such 
a  hearing  shall  be  taken  under  such  rules  and  regulations  as  the  Secretary 
of  Agriculture  may  prescribe,  reduced  to  writing,  and  made  a  part  of  the 
record  therein.  If  upon  such  hearing  the  Secretary  of  Agriculture  shall 

295 


296  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

be  of  the  opinion  that  such  association  monopolizes  or  restrains  trade  in 
interstate  or  foreign  commerce  to  such  an  extent  that  the  price  of  any 
agricultural  product  is  unduly  enhanced  thereby,  he  shall  issue  and  cause 
to  be  served  upon  the  association  an  order  reciting  the  facts  found  by  him, 
directing  such  association  to  cease  and  desist  from  monopolization  or  re- 
straint of  trade.  On  the  request  of  such  association  or  if  such  association 
fails  or  neglects  for  thirty  days  to  obey  such  order,  the  Secretary  of 
Agriculture  shall  file  in  the  district  court  in  the  judicial  district  in  which 
such  association  has  its  principal  place  of  business  a  certified  copy  of  the 
order  and  of  all  the  records  in  the  proceeding,  together  with  a  petition 
asking  that  the  order  be  enforced,  and  shall  give  notice  to  the  Attorney 
General  and  to  said  association  of  such  filing.  Such  district  court  shall 
thereupon  have  jurisdiction  to  enter  a  decree  affirming,  modifying,  or 
setting  aside  said  order,  or  enter  such  other  decree  as  the  court  may  deem 
equitable,  and  may  make  rules  as  to  pleadings  and  proceedings  to  be  had 
in  considering  such  order.  The  place  of  trial  may,  for  cause  or  by  consent 
of  parties  be  changed  as  in  other  causes. 

The  facts  found  by  the  Secretary  of  Agriculture  and  recited  or  set 
forth  in  said  order  shall  be  prima  facie  evidence  of  such  facts,  but  either 
party  may  adduce  additional  evidence.  The  Department  of  Justice  shall 
have  charge  of  the  enforcement  of  such  order.  After  the  order  is  so  filed 
in  such  district  court  and  while  pending  for  review  therein  the  court  may 
issue  a  temporary  writ  of  injunction  forbidding  such  association  from  vio- 
lating such  order  or  any  part  thereof.  The  court  may,  upon  conclusion  of 
its  hearing,  enforce  its  decree  by  a  permanent  injunction  or  other  appro- 
priate remedy.  Service  of  such  complaint  and  of  all  notices  may  be  made 
upon  such  association  by  service  upon  any  officer  or  agent  thereof  engaged 
in  carrying  on  its  business,  or  on  any  attorney  authorized  to  appear  in  such 
proceeding  for  such  association,  and  such  service  shall  be  binding  upon 
such  association,  the  officers,  and  members  thereof. 

Approved,  February  18,  1922. 


APPENDIX  E 

FEDERAL  TKADE  COMMISSION  ACT 
[Act  of  September  26,  1914   (38  Stat.  717).] 

AN  ACT  To  create  a  Federal  Trade  Commission,  to  define  its  powers  and 
duties,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  a  commission  is  hereby 
created  and  established,  to  be  known  as  the  Federal  Trade  Commission 
(hereinafter  referred  to  as  the  commission),  which  shall  be  composed  of 
five  commissioners,  who  shall  be  appointed  by  the  President,  by  and  with 
the  advice  and  consent  of  the  Senate.  Not  more  than  three  of  the  com- 
missioners shall  be  members  of  the  same  political  party.  The  first  com- 
missioners appointed  shall  continue  in  office  for  terms  of  three,  four,  five, 
six,  and  seven  years,  respectively,  from  the  date  of  the  taking  effect  of  this 
Act,  the  term  of  each  to  be  designated  by  the  President,  but  their  suc- 
cessors shall  be  appointed  for  terms  of  seven  years,  except  that  any 'person 
chosen  to  fill  a  vacancy  shall  be  appointed  only  for  the  unexpired  term  of 
the  commissioner  whom  he  shall  succeed.  The  commission  shall  choose  a 
chairman  from  its  own  membership.  No  commissioner  shall  engage  in  any 
other  business,  vocation,  or  employment.  Any  commissioner  may  be  re- 
moved by  the  President  for  inefficiency,  neglect  of  duty,  or  malfeasance  in 
office.  A  vacancy  in  the  commission  shall  not  impair  the  right  of  the  re- 
maining commissioners  to  exercise  all  the  powers  of  the  commission. 

The  commission  shall  have  an  official  seal,  which  shall  be  judicially 
noticed. 

SEC.  2.  That  each  commissioner  shall  receive  a  salary  of  $10,000  a 
year,  payable  in  the  same  manner  as  the  salaries  of  the  judges  of  the  courts 
of  the  United  States.  The  commission  shall  appoint  a  secretary,  who 
shall  receive  a  salary  of  $5,000  a  year,  payable  in  like  manner,  and  it 
shall  have  authority  to  employ  and  fix  the  compensation  of  such  attorneys, 
special  experts,  examiners,  clerks,  and  other  employees  as  it  may  from 
time  to  time  find  necessary  for  the  proper  performance  of  its  duties  and 
as  may  be  from  time  to  time  appropriated  for  by  Congress. 

With  the  exception  of  the  secretary,  a  clerk  to  each  commissioner, 
the  attorneys,  and  such  special  experts  and  examiners  as  the  commission 
may  from  time  to  time  find  necessary  for  the  conduct  of  its  work,  all  em- 

297 


298  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

ployees  of  the  commission  shall  be  a  part  of  the  classified  civil  service, 
and  shall  enter  the  service  under  such  rules  and  regulations  as  may  be 
prescribed  by  the  commission  and  by  the  Civil  Service  Commission. 

All  of  the  expenses  of  the  commission,  including  all  necessary  ex- 
penses for  transportation  incurred  by  the  commissioners  or  by  their  em- 
ployees under  their  orders,  in  making  any  investigation,  or  upon  official 
business  in  any  other  places  than  in  the  city  of  Washington,  shall  be 
allowed  and  paid  on  the  presentation  of  itemized  vouchers  therefor  ap- 
proved by  the  commission. 

Until  otherwise  provided  by  law,  the  commission  may  rent  suitable 
offices  for  its  use. 

The  Auditor  for  the  State  and  Other  Departments  shall  receive  and 
examine  all  accounts  of  expenditures  of  the  commission. 

SEC.  3.  That  upon  the  organization  of  the  commission  and  election  of 
its  chairman,  the  Bureau  of  Corporations  and  the  offices  of  Commissioner 
and  Deputy  Commissioner  of  Corporations  shall  cease  to  exist;  and  all 
pending  investigations  and  proceedings  of  the  Bureau  of  Corporations  shall 
be  continued  by  the  commission. 

All  clerks  and  employees  of  the  said  bureau  shall  be  transferred  to 
and  become  clerks  and  employees  of  the  commission  at  their  present  grades 
and  salaries.  All  records,  papers,  and  property  of  the  said  bureau  shall 
become  records,  papers,  and  property  of  the  commission,  and  all  unex- 
pended funds  and  appropriations  for  the  use  and  maintenance  of  the  said 
bureau,  including  any  allotment  already  made  to  it  by  the  Secretary  of 
Commerce  from  the  contingent  appropriation  for  the  Department  of  Com- 
merce for  the  fiscal  year  nineteen  hundred  and  fifteen,  or  from  the  depart- 
mental printing  fund  for  the  fiscal  year  nineteen  hundred  and  fifteen,  shall 
become  funds  and  appropriations  available  to  be  expended  by  the  com- 
mission in  the  exercise  of  the  powers,  authority,  and  duties  conferred  on  it 
by  this  Act. 

The  principal  office  of  the  commission  shall  be  in  the  city  of  Wash- 
ington, but  it  may  meet  and  exercise  all  its  powers  at  any  other  place. 
The  commission  may,  by  one  or  more  of  its  members,  or  by  such  examiners 
as  it  may  designate,  prosecute  any  inquiry  necessary  to  its  duties  in  any 
part  of  the  United  States. 

SEC.  4.  That  the  words  defined  in  this  section  shall  have  the  follow- 
ing meaning  when  found  in  this  Act,  to  wit: 

"Commerce"  means  commerce  among  the  several  States  or  with  for- 
eign nations,  or  in  any  Territory  of  the  United  States  or  in  the  District 
of  Columbia,  or  between  any  such  Territory  and  another,  or  between  any 
such  Territory  and  any  State  or  foreign  nation,  or  between  the  District 
of  Columbia  and  any  State  or  Territory  or  foreign  nation. 

"Corporation"  means  any  company  or  association  incorporated  or 
unincorporated,  which  is  organized  to,  carry  on  business  for  profit  and 
has  shares  of  capital  or  capital  stock,  and  any  company  or  association, 
incorporated  or  unincorporated,  without  shares  of  capital  or  capital  stock, 


APPENDICES  299 

except  partnerships,  which  is  organized  to  carry  on  business  for  its  own 
profit  or  that  of  its  members. 

"Documentary  evidence"  means  all  documents,  papers,  and  correspon- 
dence in  existence  at  and  after  the  passage  of  this  Act. 

"Acts  to  regulate  commerce"  means  the  Act  entitled  "An  Act  to 
regulate  commerce,"  approved  February  fourteenth,  eighteen  hundred 
and  eighty-seven,  and  all  Acts  amendatory  thereof  and  supplementary 
thereto. 

"Anti-trust  acts"  means  the  Act  entitled  "An  Act  to  protect  trade 
and  commerce  against  unlawful  restraints  and  monopolies,"  approved  July 
second,  eighteen  hundred  and  ninety;  also  the  sections  seventy-three  to 
seventy-seven,  inclusive,  of  an  Act  entitled  "An  Act  to  reduce  taxation,  to 
provide  revenue  for  the  Government,  and  for  other  purposes,"  approved 
August  twenty-seventh,  eighteen  hundred  and  ninety-four;  and  also  the 
Act  entitled  "An  Act  to  amend  sections  seventy-three  and  seventy-six  of 
the  Act  of  August  twenty-seventh,  eighteen  hundred  and  ninety-four,  en- 
titled 'An  Act  to  reduce  taxation,  to  provide  revenue^  for  the  Government, 
and  for  other  purposes,' "  approved  February  twelfth,  nineteen  hundred 
and  thirteen. 

SEC.  5.  That  unfair  methods  of  competition  in  commerce  are  hereby 
declared  unlawful. 

The  commission  is  hereby  empowered  and  directed  to  prevent  persons, 
partnerships,  or  corporations,  except  banks,  and  common  carriers  subject 
to  the  Acts  to  regulate  commerce,  from  using  unfair  methods  of  competi- 
tion in  commerce. 

Whenever  the  commission  shall  have  reason  to  believe  that  any  such 
person,  partnership,  or  corporation  has  been  or  is  using  any  unfair  method 
of  competition  in  commerce,  and  if  it  shall  appear  to  the  commission  that 
a  proceeding  by  it  in  respect  thereof  would  be  to  the  interest  of  the 
public,  it  shall  issue  and  serve  upon  such  person,  partnership,  or  cor- 
poration a  complaint  stating  its  charges  in  that  respect,  and  containing 
a  notice  of  a  hearing  upon  a  day  and  at  a  place  therein  fixed  at  least 
thirty  days  after  the  service  of  said  complaint.  The  person,  partnership, 
or  corporation  so  complained  of  shall  have  the  right  to  appear  at  the 
place  and  time  so  fixed  and  show  cause  why  an  order  should  not  be  en- 
tered by  the  commission  requiring  such  person,  partnership,  or  corpora- 
tion to  cease  and  desist  from  the  violation  of  the  law  so  charged  in  said 
complaint.  Any  person,  partnership,  or  corporation  may  make  applica- 
tion, and  upon  good  cause  shown  may  be  allowed  by  the  commission,  to 
intervene  and  appear  in  said  proceeding  by  counsel  or  in  person.  The 
testimony  in  any  such  proceeding  shall  be  reduced  to  writing  and  filed  in 
the  office  of  the  commission.  If  upon  such  hearing  the  commission  shall 
be  of  the  opinion  that  the  method  of  competition  in  question  is  prohibited 
by  this  Act,  it  shall  make  a  report  in  writing  in  which  it  shall  state  its 
findings  as  to  the  facts,  and  shall  issue  and  cause  to  be  served  on  such 
person,  partnership,  or  corporation  an  order  requiring  such  person,  part- 


300  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

nership,  or  corporation  to  cease  and  desist  from  using  such  method  of 
competition.  Until  a  transcript  of  the  record  in  such  hearing  shall  have 
been  filed  in  a  circuit  court  of  appeals  of  the  United  States,  as  hereinafter 
provided,  the  commission  may  at  any  time,  upon  such  notice  and  in  such 
manner  as  it  shall  deem  proper,  modify  or  set  aside,  in  whole  or  in  part, 
any  report  or  any  order  made  or  issued  by  it  under  this  section. 

If  such  person,  partnership,  or  corporation  fails  or  neglects  to  obey 
such  order  of  the  commission  while  the  same  is  in  effect,  the  commission 
may  apply  to  the  circuit  court-  of  appeals  of  the  United  States,  within  any 
circuit  where  the  method  of  competition  in  question  was  used  or  where 
such  person,  partnership,  or  corporation  resides  or  carries  on  business,  for 
the  enforcement  of  its  order,  and  shall  certify  and  file  with  its  application 
a  transcript  of  the  entire  record  in  the  proceeding,  including  all  the  testi- 
mony taken  and  the  report  and  order  of  the  commission.  Upon  such 
filing  of  the  application  and  transcript  the  court  shall  cause  notice  thereof 
to  be  served  upon  such  person,  partnership,  or  corporation  and  thereupon 
shall  have  jurisdiction  of  the  proceeding  and  of  the  question  determined 
therein,  and  shall  have  power  to  make  and  enter  upon  the  pleadings,  testi- 
mony, and  proceedings  set  forth  in  such  transcript  a  decree  affirming,  modi- 
fying, or  setting  aside  the  order  of  the  commission.  The  findings  of  the 
commission  as  to  the  facts,  if  supported  by  testimony,  shall  be  conclusive. 
If  either  party  shall  apply  to  the  court  for  leave  to  adduce  additional 
evidence,  and  shall  show  to  the  satisfaction  of  the  court  that  such  addi- 
tional evidence  is  material  and  that  there  were  reasonable  grounds  for 
the  failure  to  adduce  such  evidence  in  the  proceeding  before  the  commission, 
the  court  may  order  such  additional  evidence  to  be  taken  before  the  com- 
mission and  to  be  adduced  upon  the  hearing  in  such  manner  and  upon  such 
terms  and  conditions  as  to  the  court  may  seem  proper.  The  commission 
may  modify  its  findings  as  to  the  facts,  or  make  new  findings,  by  reason 
of  the  additional  evidence  so  taken,  and  it  shall  file  such  modified  or  new 
findings,  which,  if  supported  by  testimony,  shall  be  conclusive,  and  its 
recommendation,  if  any,  for  the  modification  or  setting  aside  of  its  original 
order,  with  the  return  of  such  additional  evidence.  The  judgment  and  de- 
cree of  the  court  shall  be  final,  except  that  the  same  shall  be  subject  to 
review  by  the  Supreme  Court  upon  certiorari  as  provided  in  section  two 
hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  to  cease  and 
desist  from  using  such  method  of  competition  may  obtain  a  review  of  such 
order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a  written 
petition  praying  that  the  order  of  the  commission  be  set  aside.  A  copy 
of  such  petition  shall  be  forthwith  served  upon  the  commission,  and  there- 
upon the  commission  forthwith  shall  certify  and  file  in  the  court  a  tran- 
script of  the  record  as  hereinbefore  provided.  Upon  the  filing  of  the 
transcript  the  court  shall  have  the  same  jurisdiction  to  affirm,  set  aside, 
or  modify  the  order  of  the  commission  as  in  the  case  of  an  application  by 
the  commission  for  the  enforcement  of  its  order,  and  the  findings  of  the 


APPENDICES  301 

commission  as  to  the  facts,  if  supported  by  testimony,  shall  in  like  manner 
be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  shall  be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given  prece- 
dence over  other  cases  pending  therein,  and  shall  be  in  every  way  ex- 
pedited. No  order  of  the  commission  or  judgment  of  the  court  to  enforce 
the  same  shall  in  any  wise  relieve  or  absolve  any  person,  partnership,  or 
corporation  from  any  liability  under  the  anti-trust  acts. 

Complaints,  orders,  and  other  processes  of  the  commission  under  this 
section  may  be  served  by  anyone  duly  authorized  by  the  commission, 
either  (a)  by  delivering  a  copy  thereof  to  the  person  to  be  served,  or  to 
a  member- of  the  partnership  to  be  served,  or  to  the  president,  secretary,  or 
other  executive  officer  or  a  director  of  the  corporation  to  be  served;  or 
(b)  by  leaving  a  copy  thereof  at  the  principal  office  or  place  of  business 
of  such  person,  partnership,  or  corporation;  or  (c)  by  registering  and 
mailing  a  copy  thereof  addressed  to  such  person,  partnership,  or  corpora- 
tion at  his  or  its  principal  office  or  place  of  business.  The  verified  return 
by  the  person  so  serving  said  complaint,  order,  or  other  process  setting 
forth  the  manner  of  said  service  shall  be  proof  of  the  same,  and  the  return 
post-office*  receipt  for  said  complaint,  order,  or  other  process  registered  and 
mailed  as  aforesaid  shall  be  proof  of  the  service  of  the  same. 

SEC.  6.     That  the  commission  shall  also  have  power — 

(a)  To  gather  and  compile  information  concerning,  and  to  investigate 
from  time  to  time  the  organization,  business,  conduct,  practices,  and  man- 
agement of   any  corporation  engaged   in   commerce,   excepting  banks  and 
common  carriers  subject  to  the  Act  to  regulate  commerce,  and  its  relation 
to  other  corporations  and  to  individuals,   associations,   and  partnerships. 

(b)  To  require,  by  general  or  special  orders,  corporations  engaged  in 
commerce,  excepting  banks,  and   common   carriers   subject  to  the  Act  to 
regulate  commerce,  or  any  class  of  them,  or  any  of  them,  respectively,  to 
file  with  the  commission  in  such  form  as  the  commission  may  prescribe 
annual  or  special,  or  both  annual  and  special,  reports  or  answers  in  writ- 
ing to  specific  questions,  furnishing  to  the  commission  such  information  as 
it  may  require  as  to  the  organization,  business,  conduct,  practices,  manage- 
ment, and  relation  to  other  corporations,  partnerships,  and  individuals  of 
the  respective  corporations  filing  such  reports  or  answers  in  writing.     Such 
reports  and  answers  shall  be  made  under  oath,  or  otherwise,  as  the  com- 
mission may  prescribe,  and  shall  be  filed  with  the  commission  within  such 
reasonable  period  as  the  commission  may  prescribe,  unless  additional  time 
be  granted  in  any  case  by  the  commission. 

(c)  Whenever  a  final  decree  has  been  entered  against  any  defendant 
corporation   in   any   suit   brought   by   the   United   States   to   prevent   and 
restrain  any  violation  of  the  anti-trust  Acts,  to  make  investigation,  upon 
its  own  initiative,  of  the  manner  in  which  the  decree  has  been  or  is  being 
carried  out,  and  upon  the  application  of  the  Attorney  General  it  shall  be 


302  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

its  duty  to  make  such  investigation.  It  shall  transmit  to  the  Attorney 
General  a  report  embodying  its  findings  and  recommendations  as  a  result 
of  any  such  investigation,  and  the  report  shall  be  made  public  in  the  dis- 
cretion of  the  commission. 

(d)  Upon  the  direction  of  the  President  or  either  House  of  Congress 
to  investigate  and  report  the  facts  relating  to  any  alleged  violations  of 
the  anti-trust  Acts  by  any  corporation. 

(e)  Upon  the  application  of  the  Attorney  General  to  investigate  and 
make  recommendations  for  the  readjustment  of  the  business  of  any  cor- 
poration alleged  to  be  violating  the  anti-trust  Acts  in  order  that  the  cor- 
poration may  thereafter  maintain  its  organization,  management,  and  con- 
duct of  business  in  accordance  with  law. 

(f)  To  make  public  from  time  to  time  such  portions  of  the  informa- 
tion obtained  by  it  hereunder,  except  trade  secrets  and  names  of  customers, 
as  it  shall  deem  expedient  in  the  public  interest;  and  to  make  annual  and 
special  reports  to  the  Congress  and  to  submit  therewith  recommendations 
for  additional  legislation;  and  to  provide  for  the  publication  of  its  reports 
and  decisions  in  such  form  and  manner  as  may  be  best  adapted  for  public 
information  and  use. 

(g)  From  time  to  time  to  classify  corporations  and  to  make  rules  and 
regulations  for  the  purpose  of  carrying  out  the  provisions  of  this  Act. 

(h)  To  investigate,  from  time  to  time,  trade  conditions  in  and  with 
foreign  countries  where  associations,  combinations,  or  practices  of  manu- 
facturers, merchants,  or  traders,  or  other  conditions,  may  affect  the  for- 
eign trade  of  the  United  States,  and  to  report  to  Congress  thereon,  with 
such  recommendations  as  it  deems  advisable. 

SEC.  7.  That  in  any  suit  in  equity  brought  by  or  under  the  direction, 
of  the  Attorney  General  as  provided  in  the  anti-trust  Acts,  the  court 
may,  upon  the  conclusion  of  the  testimony  therein,  if  it  shall  be  then  of 
opinion  that  the  complainant  is  entitled  to  relief,  refer  said  suit  to  the 
commission,  as  a  master  in  chancery,  to  ascertain  and  report  an  appro- 
priate form  of  decree  therein.  The  commission  shall  proceed  upon  such 
notice  to  the  parties  and  under  such  rules  of  procedure  as  the  court  may 
prescribe,  and  upon  the  coming  in  of  such  report  such  exceptions  may  be 
filed  and  such  proceedings  had  in  relation  thereto  as  upon  the  report  of  a 
master  in  other  equity  causes,  but  the  court  may  adopt  or  reject  such 
report,  in  whole  or  in  part,  and  enter  such  decree  as  the  nature  of  the 
case  may  in  its  judgment  require. 

SEC.  8.  That  the  several  departments  and  bureaus  of  the  Government 
when  directed  by  the  President  shall  furnish  the  commission,  upon  its 
request,  all  records,  papers,  and  information  in  their  possession  relating 
to  any  corporation  subject  to  any  of  the  provisions  of  this  Act,  and  shall 
detail  from  time  to  time  such  officials  and  employees  to  the  commission 
as  he  may  direct. 

SEC.  9.  That  for  the  purposes  of  this  Act  the  commission,  or  its  duly 
authorized  agent  or  agents,  shall  at  all  reasonable  times  have  access  to, 


APPENDICES  303 

for  the  purpose  of  examination,  and  the  right  to  copy  any  documentary 
evidence  of  any  corporation  being  investigated  or  proceeded  against;  and 
the  commission  shall  have  power  to  require  by  subpoena  the  attendance 
and  testimony  of  witnesses  and  the  production  of  all  such  documentary 
evidence  relating  to  any  matter  under  investigation.  Any  member  of  the 
commission  may  sign  subpoenas,  and  members  and  examiners  of  the  com- 
mission may  administer  oaths  and  affirmations,  examine  witnesses  and  re- 
ceive evidence. 

Such  attendance  of  witnesses,  and  the  production  of  such  documentary 
evidence,  may  be  required  from  any  place  in  the  United  States,  at  any 
designated  place  of  hearing.  And  in  case  of  disobedience  to  a  subpoena 
the  commission  may  invoke  the  aid  of  any  court  of  the  United  States  in 
requiring  the  attendance  and  testimony  of  witnesses  and  the  production 
of  documentary  evidence. 

Any  of  the  district  courts  of  the  United  States  within  the  jurisdic- 
tion of  which  such  inquiry  is  carried  on  may,  in  case  of  contumacy  or 
refusal  to  obey  a  subpoena  issued  to  any  corporation  or  other  person,  issue 
an  order  requiring  such  corporation  or  other  person  to  appear  before 
the  commission,  or  to  produce  documentary  evidence  if  so  ordered,  or  to 
give  evidence  touching  the  matter  in  question ;  and  any  failure  to  obey  such 
order  of  the  court  may  be  punished  by  such  court  as  a  contempt  thereof. 

Upon  the  application  of  the  Attorney  General  of  the  United  States,  at 
the  request  of  the  commission,  the  district  courts  of  the  United  States 
shall  have  jurisdiction  to  issue  writs  of  mandamus  commanding  any  person 
or  corporation  to  comply  with  the  provisions  of  this  Act  or  any  order  of 
the  commission  made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  deposition  in  any 
proceeding  or  investigation  pending  under  this  Act  at  any  stage  of  such 
proceeding  or  investigation.  Such  depositions  may  be  taken  before  any 
person  designated  by  the  commission  and  having  power  to  administer 
oaths.  Such  testimony  shall  be  reduced  to  writing  by  the  person  taking 
the  deposition,  or  under  his  direction,  and  shall  then  be  subscribed  by  the 
deponent.  Any  person  may  be  compelled  to  appear  and  depose  and  to 
produce  documentary  evidence  in  the  same  manner  as  witnesses  may  be 
compelled  to  appear  and  testify  and  produce  documentary  evidence  before 
the  commission  as  hereinbefore  provided. 

Witnesses  summoned  before  the  commission  shall  be  paid  the  same  fees 
and  mileage  that  are  paid  witnesses  in  the  courts  of  the  United  States, 
and  witnesses  whose  depositions  are  taken  and  the  persons  taking  the 
same  shall  severally  be  entitled  to  the  same  fees  as  are  paid  for  like 
services  in  the  courts  of  the  United  States. 

No  person  shall  be  excused  from  attending  and  testifying  or  from 
producing  documentary  evidence  before  the  commission  or  in  obedience  to 
the  subpoena  of  the  commission  on  the  ground  or  for  the  reason  that  the 
testimony  or  evidence,  documentary  or  otherwise,  required  of  him  may 
tend  to  criminate  him  or  subject  him  to  a  penalty  or  forfeiture.  But  no 


304  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

natural  person  shall  be  prosecuted  or  subjected  to  any  penalty  or  for- 
feiture for  or  on  account  of  any  transaction,  matter,  or  thing  concerning 
which  he  may  testify,  or  produce  evidence,  documentary  or  otherwise,  be- 
fore the  commission  in  obedience  to  a  subpoena  issued  by  it:  Provided, 
That  no  natural  person  so  testifying  shall  be  exempt  from  prosecution  and 
punishment  for  perjury  committed  in  so  testifying. 

SEC.  10.  That  any  person  who  shall  neglect  or  refuse  to  attend  and 
testify,  or  to  answer  any  lawful  inquiry,  or  to  produce  documentary  evi- 
dence, if  in  his  power  to  do  so,  in  obedience  to  the  subpoena  or  lawful 
requirement  of  the  commission,  shall  be  guilty  of  an  offense  and  upon 
conviction  thereof  by  a  court  of  competent  jurisdiction  shall  be  punished 
by  a  fine  of  not  less  than  $1,000  nor  more  than  $5,000,  or  by  imprisonment 
for  not  more  than  one  year,  or  by  both  such  fine  and  imprisonment. 

Any  person  who  shall  willfully  make,  or  cause  to  be  made,  any  false 
entry  or  statement  of  fact  in  any  report  required  to  be  made  under  this 
Act,  or  who  shall  willfully  make,  or  cause  to  be  made,  any  false  entry  in 
any  account,  record,  or  memorandum  kept  by  any  corporation  subject  to 
this  Act,  or  who  shall  willfully  neglect  or  fail  to  make,  or  to  cause  to  be 
made,  full,  true,  and  correct  entries  in  such  accounts,  records,  or  memo- 
randa of  all  facts  and  transactions  appertaining  to  the  business  of  such 
corporation,  or  who  shall  willfully  remove  out  of  the  jurisdiction  of  the 
United  States,  or  willfully  mutilate,  alter,  or  by  any  other  means  falsify 
any  documentary  evidence  of  such  corporation,  or  who  shall  willfully  re- 
fuse to  submit  to  the  commission  or  to  any  of  its  authorized  agents,  for 
the  purpose  of  inspection  and  taking  copies,  any  documentary  evidence  of 
such  corporation  in  his  possession  or  within  his  control,  shall  be  deemed 
guilty  of  an  offense  against  the  United  States,  and  shall  be  subject,  upon 
conviction  in  any  court  of  the  United  States  of  competent  jurisdiction,  to 
a  fine  of  not  less  than  $1,000  nor  more  than  $5,000,  or  to  imprisonment  for 
a  term  of  not  more  than  three  years,  or  to  both  such  fine  and  imprison- 
ment. 

If  any  corporation  required  by  this  Act  to  file  any  annual  or  special 
report  shall  fail  so  to  do  within  the  time  fixed  by  the  commission  for  filing 
the  same,  and  such  failure  shall  continue  for  thirty  days  after  notice 
of  such  default,  the  corporation  shall  forfeit  to  the  United  States  the 
sum  of  $100  for  each  and  every  day  of  the  continuance  of  such  failure, 
which  forfeiture  shall  be  payable  into  the  Treasury  of  the  United  States, 
and  shall  be  recoverable  in  a  civil  suit  in  the  name  of  the  United  States 
brought  in  the  district  where  the  corporation  has  its  principal  office  or  in 
any  district  in  which  it  shall  do  business.  It  shall  be  the  duty  of  the 
various  district  attorneys,  under  the  direction  of  the  Attorney  General  of 
the  United  States,  to  prosecute  for  the  recovery  of  forfeitures.  The  costs 
and  expenses  of  such  prosecution  shall  be  paid  out  of  the  appropriation  for 
the  expenses  of  the  courts  of  the  United  States. 

Any  officer  or  employee  of  the  commission  who  shall  make  public  any 
information  obtained  by  the  commission  without  its  authority,  unless  di- 


APPENDICES  305 

rected  by  a  court,  shall  be  deemed  guilty  of  a  misdemeanor,  and,  upon 
conviction  thereof,  shall  be  punished  by  a  fine  not  exceeding  $5,000,  or  by 
imprisonment  not  exceeding  one  year,  or  by  fine  and  imprisonment,  in 
the  discretion  of  the  court. 

SEC.  11.  Nothing  contained  in  this  Act  shall  be  construed  to  prevent 
or  interfere  with  the  enforcement  of  the  provisions  of  the  anti-trust  Acts 
or  the  Acts  to  regulate  commerce,  nor  shall  anything  contained  in  the  Act 
be  construed  to  alter,  modify,  or  repeal  the  said  anti-trust  Acts  or  the 
Acts  to  regulate  commerce  or  any  part  or  parts  thereof. 

Approved,  September  26,  1914. 


APPENDIX  F 
ACT  OF  SEPT.  8,  1916,  CH.  463 

[39  Stat.  798.] 
TITLE  VIII. — UNFAIR  COMPETITION 

SEC.  POO.  That  when  used  in  this  title,  the  term  "persons"  includes 
partnerships,  corporations,  and  associations. 

SEC.  801.  That  it  shall  be  unlawful  for  any  person  importing  or 
assisting  in  importing  any  articles  from  any  foreign  country  into  the 
United  States,  commonly  and  systematically  to  import,  sell  or  cause  to  be 
imported  or  sold  such  articles  within  the  United  States  at  a  price  sub- 
stantially less  than  the  actual  market  value  or  wholesale  price  of  such 
articles,  at  the  time  of  exportation  to  the  United  States,  in  the  principal 
markets  of  the  country  of  their  production,  or  of  other  foreign  countries 
to  which  they  are  commonly  exported  after  adding  to  such  market  value 
or  wholesale  price,  freight,  duty,  and  other  charges  and  expenses  neces- 
sarily incident  to  the  importation  and  sale  thereof  in  the  United  States: 
Provided,  That  such  act  or  acts  be  done  with  the  intent  of  destroying  or 
injuring  an  industry  in  the  United  States,  or  of  preventing  the  establish- 
ment of  an  industry  in  the  United  States,  or  of  restraining  or  monopo- 
lizing any  part  of  trade  and  commerce  in  such  articles  in  the  United 
States. 

Any  person  who  violates  or  combines  or  conspires  with  any  other 
person  to  violate  this  section  is  guilty  of  a  misdemeanor,  and,  on  con- 
viction thereof,  shall  be  punished  by  a  fine  not  exceeding  $5,000,  or  im- 
prisonment not  exceeding  one  year,  or  both,  in  the  discretion  of  the  court. 

Any  person  injured  in  his  business  or  property  by  reason  of  any 
violation  of,  or  combination  or  conspiracy  to  violate,  this  section,  may  sue 
therefor  in  the  district  court  of  the  United  States  for  the  district  in  which 
the  defendant  resides  or  is  found  or  has  an  agent,  without  respect  to  the 
amount  in  controversy,  and  shall  recover  threefold  the  damages  sustained, 
and  the  cost  of  the  suit,  including  a  reasonable  attorney's  fee. 

The  foregoing  provisions  shall  not  be  construed  to  deprive  the  proper 
State  courts  of  jurisdiction  in  actions  for  damages  thereunder. 

SEC.  802.  That  if  any  article  produced  in  a  foreign  country  is  im- 
ported into  the  United  States  under  any  agreement,  understanding,  or  con- 
dition that  the  importer  thereof  or  any  other  person  in  the  United  States 
shall  not  use,  purchase,  or  deal  in,  or  shall  be  restricted  in  his  using, 
purchasing,  or  dealing  in,  the  articles  of  any  other  person,  there  shall  be 
levied,  collected,  and  paid  thereon,  in  addition  to  the  duty  otherwise  im- 


APPENDICES 


307 


posed  by  law,  a  special  duty  equal  to  double  the  amount  of  such  duty: 
Provided,  That  the  above  shall  not  be  interpreted  to  prevent  the  estab- 
lishing in  this  country  on  the  part  of  a  foreign  producer  of  an  exclusive 
agency  for  the  sale  in  the  United  States  of  the  products  of  said  foreign 
producer  or  merchant,  nor  to  prevent  such  exclusive  agent  from  agreeing 
not  to  use,  purchase,  or  deal  in  the  article  of  any  other  person,  but  the 
proviso  shall  not  be  construed  to  exempt  from  the  provisions  of  this 
section  any  article  imported  by  such  exclusive  agent  if  such  agent  is  re- 
quired by  the  foreign  producer  or  if  it  is  agreed  between  such  agent  and 
such  foreign  producer  that  any  agreement,  understanding  or  condition  set 
out  in  this  section  shall  be  imposed  by  such  agent  upon  the  sale  or  other 
disposition  of  such  article  to  any  person  in  the  United  States. 

SEC.  803.  That  the  Secretary  of  the  Treasury  shall  make  such  rules 
and  regulations  as  are  necessary  for  the  carrying  out  of  the  provisions  of 
section  eight  hundred  and  two. 


APPENDIX  G 

PACKERS  AND  STOCKYARDS  ACT  OF 
[Act  of  Aug.  15,  1921.] 

AN  ACT  To  regulate  interstate  and  foreign  commerce  in  live  stock,  live- 
stock products,  dairy  products,  poultry,  poultry  products,  and  eggs, 
and  for  other  purposes. 

Be  it  enacted  ly  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled, 

TITLE  I. — DEFINITIONS. 

This  Act  may  be  cited  as  the  "Packers  and  Stockyards  Act,  1921." 
SEC.  2.     (a)   When  used  in  this  Act — 

( 1 )  The  term   "person"    includes   individuals,   partnerships,    corpora- 
tions, and  associations; 

(2)  The  term  "Secretary"  means  the  Secretary  of  Agriculture; 

(3)  The  term  "meat  food  products"  means  all  products  and  by-prod- 
ucts of  the  slaughtering  and  meat-packing  industry — if  edible; 

(4)  The  term  "live  stock"  means  cattle,  sheep,  swine,  horses,  mules, 
or  goats — whether  live  or  dead; 

(5)  The  term  "live-stock  products"  means  all  products  and  by-prod- 
ucts  (other  than  meats  and  meat  food  products)    of  the  slaughtering  and 
meat-packing  industry  derived  in  or  in  part  from  live  stock;  and 

(6)  The  term  "commerce"  means  commerce  between  any  State,  Terri- 
tory, or  possession,  or  the  District  of  Columbia,   and  any  place  outside 
thereof;  or  between  points  within  the  same  State,  Territory,  or  possession, 
or  the  District  of  Columbia,  but  through  any  place  outside  thereof;    or 
within  any  Territory  or  possession,  or  the  District  of  Columbia. 

(b)  For  the  purpose  of  this  Act  (but  not  in  any  wise  limiting  the 
foregoing  definition)  a  transaction  in  respect  to  any  article  shall  be  con- 
sidered to  be  in  commerce  if  such  article  is  part  of  that  current  of  com- 
merce usual  in  the  live-stock  and  meat-packing  industries,  whereby  live 
stock,  meats,  meat  food  products,  live-stock  products,  dairy  products, 
poultry,  poultry  products,  or  eggs,  are  sent  from  one  State  with  the  ex- 
pectation that  they  will  end  their  transit,  after  purchase,  in  another,  in- 
cluding, in  addition  to  cases  within  the  above  general  description,  all  cases 
where  purchase  or  sale  is  either  for  shipment  to  another  State,  or  for 

308 


APPENDICES  309 

slaughter  of  live  stock  within  the  State  and  the  shipment  outside  the 
State  of  the  products  resulting  from  such  slaughter.  Articles  normally 
in  such  current  of  commerce  shall  not  be  considered  out  of  such  current 
through  resort  being  had  to  any  means  or  device  intended  to  remove  trans- 
actions in  respect  thereto  from  the  provisions  of  this  Act.  For  the  purpose 
of  this  paragraph  the  word  "State"  includes  Territory,  the  District  of 
Columbia,  possession  of  the  United  States,  and  foreign  nation. 

TITLE  II. — PACKERS. 

SEC.  201.     When  used  in  this  Act — 

The  term  "packer"  means  any  person  engaged  in  the  business  (a) 
of  buying  live  stock  in  commerce  for  purposes  of  slaughter,  or  (b)  of 
manufacturing  or  preparing  meats  or  meat  food  products  for  sale  or 
shipment  in  commerce,  or  (c)  of  manufacturing  or  preparing  live-stock 
products  for  sale  or  shipment  in  commerce,  or  (d)  of  marketing  meats, 
meat  food  products,  live-stock  products,  dairy  products,  poultry,  poultry 
products,  or  eggs,  in  commerce;  but  no  person  engaged  in  such  business 
of  manufacturing  or  preparing  live-stock  products  or  in  such  marketing 
business  shall  be  considered  a  packer  unless — 

(1)  Such  person  is  also  engaged  in  any  business  referred  to  in  clause 
(a)  or  (b)  above,  or  unless 

(2)  Such   person   owns    or    controls,    directly   or    indirectly,   through 
stock  ownership  or  control  or  otherwise,  by  himself  or  through  his  agents, 
servants,  or  employees,  any  interest  in  any  business  referred  to  in  clause 
(a)  or  (b)  above,  or  unless 

(3)  Any  interest  in  such  business  of  manufacturing  or  preparing  live- 
stock products,  or  in  such  marketing  business  is  owned  or  controlled,  di- 
rectly or  indirectly,  through  stock  ownership  or  control  or  otherwise,  by 
himself  or  through  his  agents,  servants,  or  employees,  by  any  person  en- 
gaged in  any  business  referred  to  in  clause  (a)   or  (b)  above,  or  unless 

(4)  Any  person  or  persons  jointly  or  severally,  directly  or  indirectly, 
through  stock  ownership  or  control  or  otherwise,  by  themselves  or  through 
their  agents,  servants,  or  employees,  own  or  control  in  the  aggregate  20 
per  centum  or  more  of  the  voting  power  or  control  in  such  business  of 
manufacturing  or  preparing  live-stock  products,  or  in  such  marketing  busi- 
ness and  also  20  per  centum  or  more  of  such  power  or  control  in  any 
business  referred  to  in  clause   (a)  or   (b)   above. 

SEC.  202.    It  shall  be  unlawful  for  any  packer  to: 

(a)  Engage   in   or   use   any   unfair,   unjustly  discriminatory,   or   de- 
ceptive practice  or  device  in  commerce;  or 

(b)  Make  or  give,  in  commerce,  any  undue  or  unreasonable  preference 
or  advantage  to  any  particular  person  or  locality  in  any  respect  whatso- 
ever, or  subject,  in  commerce,   any  particular  person  or  locality  to  any 
undue  or  unreasonable  prejudice  or  disadvantage  in  any  respect  whatso- 
ever; or 


310  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

(c)  Sell  or  otherwise  transfer  to  or  for  any  other  packer,  or  buy  or 
otherwise  receive  from  or  for  any  other  packer,  any  article  for  the  pur- 
pose or  with  the  effect  of  apportioning  the  supply  in  commerce  between  any 
such  packers,  if  such  apportionment  has  the  tendency  or  effect  of  restrain- 
ing commerce  or  of  creating  a  monopoly  in  commerce;  or 

(d)  Sell  or  otherwise  transfer  to  or  for  any  other  person,  or  buy  or 
otherwise  receive  from  or  for  any  other  person,  any  article  for  the  purpose 
or  with  the  effect  of  manipulating  or  controlling  prices  in  commerce,  or 
of  creating  a  monopoly  in  the  acquisition  of,  buying,  selling,  or  dealing  in, 
any  article  in  commerce,  or  of  restraining  commerce;  or 

(e)  Engage  in  any  course  of  business  or  do  any  act  for  the  purpose 
or   with   the   effect   of   manipulating   or    controlling   prices    in   commerce, 
or  of  creating  a  monopoly  in  the  acquisition  of,  buying,  selling,  or  deal- 
ing in,  any  article  in  commerce,  or  of  restraining  commerce;  or 

(f)  Conspire,  combine,  agree,  or  arrange  with  any  other  person    (1) 
to  apportion  territory  for  carrying  on  business  in  commerce,  or    (2)    to 
apportion    purchases    or    sales    of   any   article    in   commerce,    or    (3)    to 
manipulate  or  control  prices  in  commerce;  or 

(g)  Conspire,  combine,  agree  or  arrange  with  any  other  person  to  do, 
or  aid  or  abet  the  doing  of,  any  act  made  unlawful  by  subdivision    (a), 
(b),   (c),  (d),  or  (e). 

SEC.  203.  (a)  Whenever  the  Secretary  has  reason  to  believe  that 
any  packer  has  violated  or  is  violating  any  provision  of  this  title,  he 
shall  cause  a  complaint  in  writing  to  be  served  upon  the  packer,  stating 
his  charges  in  that  respect,  and  requiring  the  packer  to  attend  and  testify 
at  a  hearing  at  a  time  and  place  designated  therein,  at  least  thirty  days 
after  the  service  of  such  complaint;  and  at  such  time  and  place  there 
shall  be  afforded  the  packer  a  reasonable  opportunity  to  be  informed  as  to 
the  evidence  introduced  against  him  (including  the  right  of  cross-exami- 
nation), and  to  be  heard  in  person  or  by  counsel  and  through  witnesses, 
under  such  regulations  as  the  Secretary  may  prescribe.  Any  person  for 
good  cause  shown  may  on  application  be  allowed  by  the  Secretary  to  inter- 
vene in  such  proceeding,  and  appear  in  person  or  by  counsel.  At  any 
time  prior  to  the  close  of  the  hearing  the  Secretary  may  amend  the  com- 
plaint; but  in  case  of  any  amendment  adding  new  charges  the  hearing 
shall,  on  the  request  of  the  packer,  be  adjourned  for  a  period  not  exceed- 
ing fifteen  days. 

(b)  If,  after  such  hearing,  the  Secretary  finds  that  the  packer  has 
violated  or  is  violating  any  provisions  of  this  title  covered  by  the  charges, 
he  shall  make  a  report  in  writing  in  which  he  shall  state  his  findings  as  to 
the  facts,  and  shall  issue  and  cause  to  be  served  on  the  packer  an  order 
requiring  such  packer  to  cease  and  desist  from  continuing  such  violation. 
The  testimony  taken  at  the  hearing  shall  be  reduced  to  writing  and  filed 
in  the  records  of  the  Department  of  Agriculture. 

(c)  Until  a  transcript  of  the  record  in  such  hearing  has  been  filed  in 
a  circuit  court  of  appeals  of  the  United  States,  as  provided  in  section 


APPENDICES  311 

204,  the  Secretary  at  any  time,  upon  such  notice  and  in  such  manner  as 
he  deems  proper,  but  only  after  reasonable  opportunity  to  the  packer  to 
be  heard,  may  amend  or  set  aside  the  report  or  order,  in  whole  or  in  part. 

(d)  Complaints,  orders,  and  other  processes  of  the  Secretary  under 
this  section  may  be  served  in  the  same  manner  as  provided  in  section 
5  of  the  Act  entitled  "An  Act  to  create  a  Federal  Trade  Commission,  to 
define  its  powers  and  duties,  and  for  other  purposes,"  approved  September 
26,  1914. 

SEC.  204.  (a)  An  order  made  under  section  203  shall  be  final  and 
conclusive  unless  within  thirty  days  after  service  the  packer  appeals  to 
the  circuit  court  of  appeals  for  the  circuit  in  which  he  has  his  principal 
place  of  business  by  filing  with  the  clerk  of  such  court  a  written  petition 
praying  that  the  Secretary's  order  be  set  aside  or  modified  in  the  manner 
stated  in  the  petition,  together  with  a  bond  in  such  sum  as  the  court 
may  determine,  conditioned  that  such  packer  will  pay  the  costs  of  the. 
proceedings  if  the  court  so  directs. 

(b)  The  clerk  of  the  court  shall  immediately  cause  a  copy  of  the 
petition  to  be  delivered  to  the  Secretary,  and  the  Secretary  shall  forth- 
with prepare,  certify,  and  file  in  the  court  a  full  and  accurate  transcript 
of  the  record  in  such  proceedings,  including  the  complaint,  the  evidence, 
and  the  report  and  order.     If  before  such  transcript  is  filed  the  Secretary 
amends  or  sets  aside  his  report  or  order,  in  whole  or  in  part,  the  petitioner 
may  amend  the  petition  within  such  time  as  the  court  may  determine, 
on  notice  to  the  Secretary. 

(c)  At  any  time  after  such  transcript  is  filed  the  court,  on  applica- 
tion of  the  Secretary,  may  issue  a  temporary  injunction  restraining,  to  the 
extent  it  deems  proper,  the  packer  and  his  officers,  directors,  agents,  and 
employees,  from  violating  any  of  the  provisions  of  the  order  pending  the 
final  determination  of  the  appeal. 

(d)  The  evidence  so  taken  or  admitted,  duly  certified   and  filed  as 
aforesaid  as  a  part  of  the  record,  shall  be  considered  by  the  court  as  the 
evidence  in  the  case.     The  proceedings  in  such  cases  in  the  circuit  court 
of   appeals   shall   be  made   a   preferred   cause   and   shall   be   expedited   in 
every  way. 

(e)  The  court  may  affirm,  modify,  or  set  aside  the  order  of  the  Sec- 
retary. 

(f)  If  the  court  determines  that  the  just  and  proper  disposition  of 
the  case  requires  the  taking  of  additional  evidence,  the  court  shall  order 
the  hearing  to  be  reopened  for  the  taking  of  such  evidence,  in  such  manner 
and  upon  such  terms  and  conditions  as  the  court  may  deem  proper.     The 
Secretary  may  modify  his  findings  as  to  the  facts,  or  make  new  findings, 
by  reason  of  the  additional  evidence  so  taken,  and  he  shall  file  such  modi- 
fied or  new  findings  and  his  recommendations,  if  any,  for  the  modification 
or  setting  aside  of  his  order,  with  the  return  of  such  additional  evidence. 

(g)  If  the  circuit  court  of  appeals  affirms  or  modifies  the  order  of 
the  Secretary,  its  decree  shall  operate  as  an  injunction  to  restrain  the 


312  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

packer,  and  his  officers,  directors,  agents,  and  employees  from  violating  the 
provisions  of  such  order  or  such  order  as  modified. 

(h)  The  circuit  court  of  appeals  shall  have  exclusive  jurisdiction  to 
review,  and  to  affirm,  set  aside,  or  modify,  such  orders  of  the  Secretary, 
and  the  decree  of  such  court  shall  be  final  except  that  it  shall  be  subject 
to  review  by  the  Supreme  Court  of  the  United  States  upon  certiorari,  as 
provided  in  section  240  of  the  Judicial  Code,  if  such  writ  is  duly  applied 
for  within  sixty  days  after  entry  of  the  decree.  The  issue  of  such  writ 
shall  not  operate  as  a  stay  of  the  decree  of  the  circuit  court  of  appeals, 
in  so  far  as  such  decree  operates  as  an  injunction,  unless  so  ordered  by 
the  Supreme  Court. 

(i)  For  the  purposes  of  this  title  the  term  "circuit  court  of  appeals," 
in  case  the  principal  place  of  business  of  the  packer  is  in  the  District  of 
Columbia,  means  the  Court  of  Appeals  of  the  District  of  Columbia. 

SEC.  205.  Any  packer,  or  any  officer,  director,  agent,  or  employee  of 
a  packer,  who  fails  to  obey  any  order  of  the  Secretary  issued  under  the 
provisions  of  section  203,  or  such  order  as  modified — 

(1)  After  the  expiration  of  the  time  allowed  for  filing  a  petition  in 
the  circuit  court  of  appeals  to  set  aside  or  modify  such  order,  if  no  such 
petition  has  been  filed  within  such  time:  or 

(2)  After  the   expiration   of   the   time  allowed   for   applying   for   a 
writ  of  certiorari,  if  such  order,  or  such  order  as  modified,  has  been  sus- 
tained by  the  circuit  court  of  appeals  and  no  such  writ  has  been  applied 
for  within  such  time;  or 

(3)  After  such  order,  or  such  order  as  modified,  has  been  sustained 
by  the  courts  as  provided  in  section  204:   shall  on  conviction  be  fined  not 
less  than  $500  nor  more  than  $10,000,  or  imprisoned  for  not  less  than  six 
months  nor  more  than  five  years,  or  both.     Each  day  during  which  such 
failure  continues  shall  be  deemed  a  separate  offense. 

TITLE  III. — STOCKYARDS. 

SEC.  301.    When  used  in  this  Act — 

(a)  The  term  "stockyard  owner"  means  any  person  engaged  in  the 
business  of  conducting  or  operating  a  stockyard; 

(b)  The  term  "stockyard  services"  means  services  or   facilities   fur- 
nished at  a  stockyard  in  connection  with  the  receiving,  buying  or  selling 
on  a  commission  basis  or  otherwise,  marketing,  feeding,  watering,  holding, 
delivery,  shipment,  weighing,  or  handling,  in  commerce,  of  live  stock; 

(c)  The   term   "market   agency"   means   any   person   engaged    in    the 
business  of  ( 1 )  buying  or  selling  in  commerce  live  stock  at  a  stockyard  on 
a  commission  basis  or  (2)  furnishing  stockyard  services;  and 

(d)  The  term  "dealer"  means  any  person,  not  a  market  agency,  en- 
gaged in  the  business  of  buying  or  selling  in  commerce  live  stock  at  a 
stockyard,  either  on  his  own  account  or  as  the  employee  or  agent  of  the 
vendor  or  purchaser. 


APPENDICES  313 

SEC.  302.  (a)  When  used  in  this  title  the  term  "stockyard"  means 
any  place,  establishment,  or  facility  commonly  known  as  stockyards,  con- 
ducted or  operated  for  compensation  or  profit  as  a  public  market,  consist- 
ing of  pens,  or  other  inclosures,  and  their  appurtenances,  in  which  live 
cattle,  sheep,  swine,  horses,  mules,  or  goats  are  received,  held,  or  kept  for 
sale  or  shipment  in  commerce.  This  title  shall  not  apply  to  a  stockyard 
of  which  the  area  normally  available  for  handling  live  stock,  exclusive  of 
runs,  alleys,  or  passage  ways,  is  less  than  twenty  thousand  square  feet. 

(b)  The  Secretary  shall  from  time  to  time  ascertain,  after  such  in- 
quiry as  he  deems  necessary,  the  stockyards  which  come  within  the  fore- 
going definition,  and  shall  give  notice  thereof  to  the  stockyard  owners 
concerned,  and  give  public  notice  thereof  by  posting  copies  of  such  notice 
in  the  stockyard,  and  in  such  other  manner  as  he  may  determine.  After 
the  giving  of  such  notice  to  the  stockyard  owner  and  to  the  public,  the 
stockyard  shall  remain  subject  to  the  provisions  of  this  title  until  like 
notice  is  given  by  the  Secretary  that  such  stockyard  no  longer  comes  within 
the  foregoing  definition. 

SEC.  303.  After  the  expiration  of  thirty  days  after  the  Secretary  has 
given  public  notice  that  any  stockyard  is  within  the  definition  of  section 
302,  by  posting  copies  of  such  notice  in  the  stockyard,  no  person  shall 
carry  on  the  business  of  a  market  agency  or  dealer  at  such  stockyard  un- 
less he  has  registered  with  the  Secretary  under  such  rules  and  regulations 
as  the  Secretary  may  prescribe,  his  name  and  address,  the  character  of 
business  in  which  he  is  engaged  and  the  kinds  of  stockyard  services,  if 
any,  which  he  furnishes  at  such  stockyard.  Whoever  violates  the  provisions 
of  this  section  shall  be  liable  to  a  penalty  of  not  more  than  $500  for 
each  such  offense  and  not  more  than  $25  for  each  day  it  continues,  which 
shall  accrue  to  the  United  States  and  may  be  recovered  in  a  civil  action 
brought  by  the  United  States. 

SEC.  304.  It  shall  be  the  duty  of  every  stockyard  owner  and  market 
agency  to  furnish  upon  reasonable  request,  without  discrimination,  reason- 
able stockyard  services  at  such  stockyard. 

SEC.  305.  All  rates  or  charges  made  for  any  stockyard  services  fur- 
nished at  a  stockyard  by  a  stockyard  owner  or  market  agency  shall  be  just, 
reasonable,  and  nondiscriminatory,  and  any  unjust,  unreasonable,  or  dis- 
criminatory rate  or  charge  is  prohibited  and  declared  to  be  unlawful. 

SEC.  306.  (a)  Within  sixty  days  after  the  Secretary  has  given  public 
notice  that  a  stockyard  is  within  the  definition  of  section  302,  by  posting 
copies  of  such  notice  in  the  stockyard,  the  stockyard  owner  and  every 
market  agency  at  such  stockyard  shall  file  with  the  Secretary,  and  print 
and  keep  open  to  public  inspection  at  the  stockyard,  schedules  showing  all 
rates  and  charges  for  the  stockyard  services  furnished  by  such  person  at 
such  stockyard.  If  a  market  agency  commences  business  at  the  stockyard 
after  the  expiration  of  such  sixty  days  such  schedules  must  be  filed  before 
any  stockyard  services  are  furnished. 

(b)   Such  schedules  shall  plainly  state  all  such  rates  and  charges  in 


314  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

such  detail  as  the  Secretary  may  require,  and  shall  also  state  any  rules 
or  regulations  which  in  any  manner  change,  affect,  or  determine  any  part 
of  the  aggregate  of  such  rates  or  charges,  or  the  value  of  the  stockyard 
services  furnished.  The  Secretary  may  determine  and  prescribe  the  form 
and  manner  in  which  such  schedules  shall  be  prepared,  arranged,  and 
posted,  and  may  from  time  to  time  make  such  changes  in  respect  thereto 
as  may  be  found  expedient. 

(c)  No  changes  shall  be  made  in  the  rates  or  charges  so  filed  and 
published,    except    after    ten    days'    notice    to    the    Secretary    and    to   the 
public   filed   and   published    as    aforesaid,    which    shall    plainly   state   the 
changes  proposed   to   be   made   and  the   time   such   changes   will    go   into 
effect;   but  the  Secretary  may,   for  good  cause  shown,  allow  changes  on 
less  than  ten  days'  notice,  or  modify  the  requirements  of  this  section  in 
respect  to  publishing,  posting,  and  filing  of  schedules,  either  in  particular 
instances  or  by  a  general  order  applicable  to  special  or  peculiar  circum- 
stances or  conditions. 

(d)  The  Secretary  may  reject  and  refuse  to  file  any  schedule  tendered 
for  filing  which  does  not  provide  and  give  lawful  notice  of  its  effective 
date,  and  any  schedule  so  rejected  by  the  Secretary  shall  be  void  and  its 
use  shall  be  unlawful. 

(e)  Whenever  there  is  filed  with  the  Secretary  any  schedule,  stating  a 
new  rate  or  charge,  or  a  new  regulation  or  practice  affecting  any  rate  or 
charge,  the  Secretary  may  either  upon  complaint  or  upon  his  own  initia- 
tive without  complaint,  at  once,  and  if  he  so  orders  without  answer  or 
other  formal  pleading  by  the  person  filing  such  schedule,  but  upon  reason- 
able notice,  enter  upon  a  hearing  concerning  the  lawfulness  of  such  rate, 
charge,   regulation,   or   practice,   and   pending   such   hearing   and   decision 
thereon  the  Secretary,  upon  filing  with  such   schedule  and  delivering  to 
the  person  filing  it  a  statement  in  writing  of  his  reasons  for  such  sus- 
pension, may  suspend  the  operation  of  such  schedule  and  defer  the  use  of 
such  rate,   charge,  regulation,   or  practice,   but  not  for  a   longer   period 
than  thirty  days  beyond  the  time  when  it  would  otherwise  go  into  effect; 
and  after  full  hearing,  whether  completed  before  or  after  the  rate,  charge, 
regulation,  or  practice  goes  into  effect,  the  Secretary  may  make  such  order 
with  reference  thereto  as  would  be  proper  in  a  proceeding  initiated  after  it 
had  become  effective.  If  any  such  hearing  can  not  be  concluded  within  the 
period  of  suspension  the  Secretary  may  extend  the  time  of  suspension  for  a 
further  period  not  exceeding  thirty  days,  and  if  the  proceeding  has  not 
been  concluded  and  an  order  made  at  the  expiration  of  such  thirty  days, 
the  proposed  change  of  rate,  charge,  regulation  or  practice  shall  go  into 
effect  at  the  end  of  such  period. 

(f)  After  the  expiration  of  the  sixty  days  referred  to  in  subdivision 
(a)  no  person  shall  carry  on  the  business  of  a  stockyard  owner  or  market 
agency  unless  the  rates  and  charges  for  the  stockyard  services  furnished 
at  the  stockyard  have  been  filed  and  published  in  accordance  with  this 
section  and  the  orders  of  the  Secretary  made  thereunder;  nor  charge,  de- 


APPENDICES  315 

mand,  or  collect  a  greater  or  less  or  different  compensation  for  such 
services  than  the  rates  and  charges  specified  in  the  schedules  filed  and 
in  effect  at  the  time;  nor  refund  or  remit  in  any  manner  any  portion 
of  the  rates  or  charges  so  specified  (but  this  shall  not  prohibit  a  coopera- 
tive association  of  producers  from  bona  fide  returning  to  its  members,  on 
a  patronage  basis,  its  excess  earnings  on  their  live  stock,  subject  to  such 
regulations  as  the  Secretary  may  prescribe)  ;  nor  extend  to  any  person  at 
such  stockyard  any  stockyard  services  except  such  as  are  specified  in  such 
schedules. 

(g)  Whoever  fails  to  comply  with  the  provisions  of  this  section  or  of 
any  regulation  or  order  of  the  Secretary  made  thereunder  shall  be  liable 
to  a  penalty  of  not  more  than  $500  for  each  such  offense,  and  not  more 
than  $25  for  each  day  it  continues,  which  shall  accrue  to  the  United  States 
and  may  be  recovered  in  a  civil  action  brought  by  the  United  States. 

(h)  Whoever  willfully  fails  to  comply  with  the  provisions  of  this 
section  or  of  any  regulation  or  order  of  the  Secretary  made  thereunder 
shall  on  conviction  be  fined  not  more  than  $1,000,  or  imprisoned  not  more 
than  one  year,  or  both. 

SEC.  307.  It  shall  be  the  duty  of  every  stockyard  owner  and  market 
agency  to  establish,  observe,  and  enforce  just,  reasonable,  and  nondis- 
criminatory  regulations  and  practices  in  respect  to  the  furnishing  of  stock- 
yard services,  and  every  unjust,  unreasonable,  or  discriminatory  regula- 
tion or  practice  is  prohibited  and  declared  to  be  unlawful. 

SEC.  308.  (a)  If  any  stockyard  owner,  market  agency,  or  dealer,  vio- 
lates any  of  the  provisions  of  sections  304,  305,  306,  or  307,  or  of  any 
order  of  the  Secretary  made  under  this  title,  he  shall  be  liable  to  the 
person  or  persons  injured  thereby  for  the  full  amount  of  damages  sus- 
tained in  consequence  of  such  violation. 

(b)  Such  liability  may  be  enforced  either  (1)  by  complaint  to  the 
Secretary  as  provided  in  section  309,  or  (2)  by  suit  in  any  district  court 
of  the  United  States  of  competent  jurisdiction;  but  this  section  shall  not 
in  any  way  abridge  or  alter  the  remedies  now  existing  at  common  law  or 
by  statute,  but  the  provisions  of  this  Act  are  in  addition  to  such  remedies. 

SEC.  309.  (a)  Any  person  complaining  of  anything  done  or  omitted 
to  be  done  by  any  stockyard  owner,  market  agency,  or  dealer  (hereinafter 
in  this  section  referred  to  as  the  "defendant")  in  violation  of  the  pro- 
visions of  sections  304,  305,  306,  or  307,  or  of  an  order  of  the  Secretary 
made  under  this  title,  may,  at  any  time  within  ninety  days  after  the 
cause  of  action  accrues,  apply  to  the  Secretary  by  petition  which  shall 
briefly  state  the  facts,  whereupon  the  complaint  thus  made  shall  be  for- 
warded by  the  Secretary  to  the  defendant,  who  shall  be  called  upon  to 
satisfy  the  complaint,  or  to  answer  it  in  writing,  within  a  reasonable  time 
to  be  specified  by  the  Secretary.  If  the  defendant  within  the  time  speci- 
fied makes  reparation  for  the  injury  alleged  to  be  done  he  shall  be  relieved 
of  liability  to  the  complainant  only  for  the  particular  violation  thus  com- 
plained of.  If  the  defendant  does  not  satisfy  the  complaint  within  the 


316  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

time  specified,  or  there  appears  to  be  any  reasonable  ground  for  investi- 
gating the  complaint,  it  shall  be  the  duty  of  the  Secretary  to  investigate 
the  matters  complained  of  in  such  manner  and  by  such  means  as  he 
deems  proper. 

(b)  The   Secretary,   at  the   request   of    the    live-stock    commissioner, 
Board  of  Agriculture,  or  other  agency  of  a   State  or   Territory,  having 
jurisdiction  over  stockyards  in  such  State  or  Territory,  shall  investigate 
any  complaint  forwarded  by  such  agency  in  like  manner   and  with   the 
same  authority  and  powers  as  in  the  case  of  a  complaint  made  under  sub- 
division (a). 

(c)  The  Secretary  may  at  any  time  institute  an  inquiry  on  his  own 
motion,  in  any  case  and  as  to  any  matter  or  thing  concerning  which  a 
complaint  is  authorized  to  be  made  to  or  before  the   Secretary,  by  any 
provision  of  this  title,  or  concerning  which  any  question  may  arise  under 
any  of  the  provisions  of  this  title,  or  relating  to  the  enforcement  of  any 
of  the  provisions  of  this  title.     The  Secretary  shall  have  the  same  power 
and  authority  to  proceed  with  any  inquiry  instituted  upon  his  own  motion 
as  though  he  had  been  appealed  to  by  petition,  including  the  power  to 
make  and   enforce   any  order   or   orders   in   the   case   or   relating   to   the 
matter  or  thing  concerning  which  the  inquiry  is  had,  except  orders  for  the 
payment  of  money. 

(d)  No  complaint  shall  at  any  time  be  dismissed  because  of  the  ab- 
sence of  direct  damage  to  the  complainant. 

(e)  If  after  hearing  on  a  complaint  the  Secretary  determines  that 
the  complainant  is  entitled  to  an  award  of  damages,  the  Secretary  shall 
make  an  order  directing  the  defendant  to  pay  to  the  complainant  the  sum 
to  which  he  is  entitled  on  or  before  a  day  named. 

(f)  If  the  defendant  does  not  comply  with  an  order  for  the  payment 
of  money  within  the  time  limit  in  such  order,  the  complainant,  or  any  per- 
son for  whose*  benefit  such  order  was  made,  may  within  one  year  of  the 
date  of  the  order  file  in  the  district  court  of  the  United  States  for  the 
district  in  which  he  resides  or  in  which  is  located  the  principal  place  of 
business  of  the  defendant  or  in  any  State  court  having  general  jurisdiction 
of  the  parties,  a  petition  setting  forth  briefly  the  causes  for  which   he 
claims  damages  and  the  order  of  the  Secretary   in  the  premises.     Such 
suit  in  the  district  court  shall  proceed  in  all  respects  like  other  civil  suits 
for  damages  except  that  the  findings  and  orders  of  the   Secretary  shall 
be  prima  facie  evidence  of  the  facts  therein  stated,  and  the  petitioner  shall 
not  be  liable  for  costs  in  the  district  court  nor  for  costs  at  any  subsequent 
stage  of  the  proceedings  unless  they  accrue  upon  his  appeal.     If  the  peti- 
tioner finally  prevails,  he  shall  be  allowed  a  reasonable  attorney's  fee  to 
be  taxed  and  collected  as  a  part  of  the  costs  of  the  suit. 

SEC.  310.  Whenever  after  full  hearing  upon  a  complaint  made  as 
provided  in  section  309,  or  after  full  hearing  under  an  order  for  investi- 
gation and  hearing  made  by  the  Secretary  on  his  own  initiative,  either  in 
extension  of  any  pending  complaint  or  without  any  complaint  whatever, 


APPENDICES  317 

the  Secretary  is  of  the  opinion  that  any  rate,  charge,  regulation,  or  prac- 
tice of  a  stockyard  owner  or  market  agency,  for  or  in  connection  with  the 
furnishing  of  stockyard  services,  is  or  will  be  unjust,  unreasonable,  or  dis- 
criminatory, the  Secretary — 

(a)  May  determine  and  prescribe  what  will  be  the  just  and  reasonable 
rate  or  charge,  or  rates  or  charges,  to  be  thereafter  observed  in  such  case, 
or  the  maximum  or  minimum,  or  maximum  and  minimum,  to  be  charged, 
and  what  regulation  or  practice  is  or  will  be  just,  reasonable,  and  non- 
discriminatory  to  be  thereafter  followed;  and 

( b )  May  make  an  order  that  such  owner  or  operator   ( 1 )    shall  cease 
and  desist  from  such  violation  to  the  extent  to  which  the  Secretary  finds 
that  it  does  or  will  exist;    (2)    shall  not  thereafter  publish,  demand,  or 
collect  any  rate  or  charge  for  the  furnishing  of  stockyard  services  other 
than  the  rate  or  charge  so  prescribed,  or  in  excess  of  the  maximum  or 
less  than  the  minimum  so  prescribed,  as  the  case  may  be;  and   (3)    shall 
conform  to  and  observe  the  regulation  or  practice  so  prescribed. 

SEC.  311.  Whenever  in  any  investigation  under  the  provisions  of 
this  title,  or  in  any  investigation  instituted  by  petition  of  the  stockyard 
owner  or  market  agency  concerned,  which  petition  is  hereby  authorized  to 
be  filed,  the  Secretary  after  full  hearing  finds  that  any  rate,  charge,  regu- 
lation, or  practice  of  any  stockyard  owner  or  market  agency,  for  or  in 
connection  with  the  buying  or  selling  on  a  commission  basis  or  otherwise, 
receiving,  marketing,  feeding,  holding,  delivery,  shipment,  weighing,  or 
handling,  not  in  commerce,  of  live  stock,  causes  any  undue  or  unreason- 
able advantage,  prejudice,  or  preference  as  between  persons  or  localities  in 
intrastate  commerce  in  live  stock  on  the  one  hand  and  interstate  or  foreign 
commerce  in  live  stock  on  the  other  hand,  or  any  undue,  unjust,  or  un- 
reasonable discrimination  against  interstate  or  foreign  commerce  in  live 
stock,  which  is  hereby  forbidden  and  declared  to  be  unlawful,  the  Secre- 
tary shall  prescribe  the  rate,  charge,  regulation,  or  practice  thereafter  to 
be  observed,  in  such  manner  as,  in  his  judgment,  will  remove  such  advan- 
tage, preference,  or  discrimination.  Such  rates,  charges,  regulations,  or 
practices  shall  be  observed  while  in  effect  by  the  stockyard  owners  or 
market  agencies  parties  to  such  proceeding  affected  thereby,  the  law  of  any 
State  or  the  decision  or  order  of  any  State  authority  to  the  contrary 
notwithstanding. 

SEC.  312.  (a)  It  shall  be  unlawful  for  any  stockyard  owner,  market 
agency,  or  dealer  to  engage  in  or  use  any  unfair,  unjustly  discriminatory, 
or  deceptive  practice  or  device  in  connection  with  the  receiving,  market- 
ing, buying  or  selling  on  a  commission  basis  or  otherwise,  feeding,  water- 
ing, holding,  delivery,  shipment,  weighing  or  handling,  in  commerce  at  a 
stockyard,  of  live  stock. 

(b)  Whenever  complaint  is  made  to  the  Secretary  by  any  person,  or 
whenever  the  Secretary  has  reason  to  believe,  that  any  stockyard  owner, 
market  agency,  or  dealer  is  violating  the  provisions  of  subdivision  (a),  the 
Secretary  after  notice  and  full  hearing  may  make  an  order  that  he  shall 


318  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

cease  and  desist  from  continuing  such  violation  to  the  extent  that  the 
Secretary  finds  that  it  does  or  will  exist. 

SEC.  313.  Except  as  otherwise  provided  in  this  Act,  all  orders  of  the 
Secretary  under  this  title,  other  than  orders  for  the  payment  of  money, 
shall  take  effect  within  such  reasonable  time,  not  less  than  five  days,  as  is 
prescribed  in  the  order,  and  shall  continue  in  force  until  his  further  order, 
or  for  a  specified  period  of  time,  according  as  is  prescribed  in  the  order, 
unless  such  order  is  suspended  or  modified  or  set  aside  by  the  Secretary 
or  is  suspended  or  set  aside  by  a  court  of  competent  jurisdiction. 

SEO.  314.  (a)  Any  stockyard  owner,  market  agency,  or  dealer  who 
knowingly  fails  to  obey  any  order  made  under  the  provisions  of  sections 
310,  311,  or  312  shall  forfeit  to  the  United  States  the  sum  of  $500  for  each 
offense.  Each  distinct  violation  shall  be  a  separate  offense,  and  in  case  of 
a  continuing  violation  each  day  shall  be  deemed  a  separate  offense.  Such 
forfeiture  shall  be  recoverable  in  a  civil  suit  in  the  name  of  the  United 
States. 

(b)  It  shall  be  the  duty  of  the  various  district  attorneys,  under  the 
direction  of  the  Attorney  General,  to  prosecute  for  the  recovery  of  for- 
feitures. The  costs  and  expense  of  such  prosecution  shall  be  paid  out  of 
the  appropriation  for  the  expenses  of  the  courts  of  the  United  States. 

SEC.  315.  If  any  stockyard  owner,  market  agency,  or  dealer  fails  to 
obey  any  order  of  the  Secretary  other  than  for  the  payment  of  money  while 
the  same  is  in  effect,  the  Secretary,  or  any  party  injured  thereby,  or  the 
United  States  by  its  Attorney  General,  may  apply  to  the  district  court  for 
the  district  in  which  such  person  has  his  principal  place  of  business  for 
the  enforcement  of  such  order.  If  after  hearing  the  court  determines  that 
the  order  was  lawfully  made  and  duly  served  and  that  such  person  is  in 
disobedience  of  the  same,  the  court  shall  enforce  obedience  to  such  order 
by  a  writ  of  injunction  or  other  proper  process,  mandatory  or  otherwise, 
to  restrain  such  person,  his  officer's,  agents,  or  representatives  from  further 
disobedience  of  such  order  or  to  enjoin  upon  him  or  them  obedience  to 
the  same. 

SEC.  316.  For  the  purposes  of  this  title,  the  provisions  of  all  laws 
relating  to  the  suspending  or  restraining  the  enforcement,  operation,  or 
execution  of,  or  the  setting  aside  in  whole  or  in  part  the  orders  of  the 
Interstate  Commerce  Commission,  are  made  applicable  to  the  jurisdiction, 
powers,  and  duties  of  the  Secretary  in  enforcing  the  provisions  of  this 
title,  and  to  any  person  subject  to  the  provisions  of  this  title. 

TITLE  IV. — GENERAL  PROVISIONS. 

SEC.  401.  Every  packer,  stockyard  owner,  market  agency,  and  dealer 
shall  keep  such  accounts,  records,  and  memoranda  as  fully  and  correctly 
disclose  all  transactions  involved  in  his  business,  including  the  true  owner- 
ship of  such  business  by  stockholding  or  otherwise.  Whenever  the  Secre- 
tary finds  that  the  accounts,  records,  and  memoranda  of  any  such  person 


APPENDICES  319 

do  not  fully  and  correctly  disclose  all  transactions  involved  in  his  busi- 
ness, the  Secretary  may  prescribe  the  manner  and  form  in  which  such 
accounts,  records,  and  memoranda  shall  be  kept,  and  thereafter  any  such 
person  who  fails  to  keep  such  accounts,  records,  and  memoranda  in  the 
manner  and  form  prescribed  or  approved  by  the  Secretary  shall  upon  con- 
viction be  fined  not  more  than  $5,000,  or  imprisoned  not  more  than  three 
years,  or  both. 

SEC.  402.  For  the  efficient  execution  of*  the  provisions  of  this  Act,  and 
in  order  to  provide  information  for  the  use  of  Congress,  the  provisions 
(including  penalties)  of  sections  6,  8,  9,  and  10  of  the  Act  entitled  "An  Act 
to  create  a  Federal  Trade  Commission,  to  define  its  powers  and  duties,  and 
for  other  purposes,"  approved  September  26,  1914,  are  made  applicable  to 
the  jurisdiction,  powers,  and  duties  of  the  Secretary  in  enforcing  the 
provisions  of  this  Act  and  to  any  person  subject  to  the  provisions  of  this 
Act,  whether  or  not  a  corporation.  The  Secretary,  in  person  or  by  such 
agents  as  he  may  designate,  may  prosecute  any  inquiry  necessary  to  his 
duties  under  this  Act  in  any  part  of  the  United  States. 

SEC.  403.  When  construing  and  enforcing  the  provisions  of  this  Act, 
the  act,  omission,  or  failure  of  any  agent,  officer,  or  other  person  acting  for 
or  employed  by  any  packer,  stockyard  owner,  market  agency,  or  dealer, 
within  the  scope  of  his  employment  or  office,  shall  in  every  case  also  be 
deemed  the  act,  omission,  or  failure  of  such  packer,  stockyard  owner,  mar- 
ket agency,  or  dealer,  as  well  as  that  of  such  agent,  officer,  or  other 
person. 

SEC.  404.  The  Secretary  may  report  any  violation  of  this  Act  to  the 
Attorney  General  of  the  United  States,  who  shall  cause  appropriate  pro- 
ceedings to  be  commenced  and  prosecuted  in  the  proper  courts  of  the 
United  States  without  delay. 

SEC.  405.  Nothing  contained  in  this  Act,  except  as  otherwise  provided 
herein,  shall  be  construed — 

(a)  To  prevent  or  interfere  with  the  enforcement  of,  or  the  procedure 
under,  the  provisions  of  the  Act  entitled  "An  Act  to  protect  trade  and 
commerce  against  unlawful  restraints  and  monopolies,"  approved  July  2, 
1890,  the  Act  entitled  "An  Act  to  supplement  existing  laws  against  un- 
lawful restraints  and  monopolies,  and  for  other  purposes,"  approved  Oc- 
tober 15,  1914,  the  Interstate  Commerce  Act  as  amended,  the  Act  entitled 
"An   Act   to   promote    export   trade,    and    for    other    purposes,"    approved 
April  10,  1918,  or  sections  73  to  77,  inclusive,  of  the  Act  of  August  27, 
1894,  entitled  "An  Act  to  reduce  taxation  to  provide  revenue  for  the  Gov- 
ernment, and  for  other  purposes,"  as  amended  by  the  Act  entitled  "An 
Act  to  amend  sections  seventy-three  and  seventy-six  of  the  Act  of  August 
twenty-seventh,  eighteen  hundred  and  ninety-four,  entitled  'An  Act  to  re- 
duce taxation,  to  provide  revenue  for  the  Government,  and  for  other  pur- 
poses/" approved  February  12,  1913,  or 

(b)  To  alter,  modify,   or   repeal   such  Acts   or   any  part  or   parts 
thereof,  or 


320  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

(c)  To  prevent  or  interfere  with  any  investigation,  proceeding,  or 
prosecution  begun  and  pending  at  the  time  this  Act  becomes  effective, 

SEC.  406.  (a)  Nothing  in  this  Act  shall  affect  the  power  or  juris- 
diction of  the  Interstate  Commerce  Commission,  nor  confer  upon  the  Secre- 
tary concurrent  power  or  jurisdiction  over  any  matter  within  the  power 
or  jurisdiction  of  such  Commission. 

(b)  On  and  after  the  enactment  of  this  Act,  and  so  long  as  it  remains 
in  effect,  the  Federal  Trade  Commission  shall  have  no  power  or  jurisdic- 
tion so  far  as  relating  to  any  matter  which  by  this  Act  is  made  subject 
to  the  jurisdiction  of  the  Secretary,  except  in  cases  in  which,  before  the 
enactment  of  this  Act,  complaint  has  been  served  under  section  5  of  the 
Act  entitled  "An  Act  to  create  a  Federal  Trade  Commission,  to  define 
its  power  and  duties,  and  for  other  purposes,"  approved  September  26, 
1914,  or  under  section  11  of  the  Act  entitled  "An  Act  to  supplement  exist- 
ing laws  against  unlawful  restraints  and  monopolies,  and  for  other  pur- 
poses," approved  October  15,  1914,  and  except  when  the  Secretary  of  Agri- 
culture, in  the  exercise  of  his  duties  hereunder,  shall  request  of  the  said 
Federal  Trade  Commission  that  it  make  investigations  and  report  in 
any  case. 

SEC.  407.  The  Secretary  may  make  such  rules,  regulations  and  orders 
as  may  be  necessary  to  carry  out  the  provisions  of  this  Act  and  may  co- 
operate with  any  department  or  agency  of  the  Government,  any  State, 
Territory,  District,  or  possession,  or  department,  agency  or  political  sub- 
division thereof,  or  any  person;  and  shall  have  the  power  to  appoint,  re- 
move, and  fix  the  compensation  of  such  officers  and  employees,  not  in 
conflict  with  existing  law,  and  make  such  expenditures  for  rent  outside 
the  District  of  Columbia,  printing,  telegrams,  telephones,  law  books,  books 
of  reference,  periodicals,  furniture,  stationery,  office  equipment,  travel,  and 
other  supplies  and  expenses  as  shall  be  necessary  to  the  administration  of 
this  Act  in  the  District  of  Columbia  and  elsewhere,  and  as  may  be  appro- 
priated for  by  Congress,  and  there  is  hereby  authorized  to  be  appropriated, 
out  of  any  money  in  the  Treasury  not  otherwise  appropriated,  such  sums 
as  may  be  necessary  for  such  purpose. 

SEC.  408.  If  any  provision  of  this  Act  or  the  application  thereof  to 
any  person  or  circumstances  is  held  invalid,  the  validity  of  the  remainder 
of  the  Act  and  of  the  application  of  such  provision  to  other  persons  and 
circumstances  shall  not  be  affected  thereby. 

Approved,  August  15,  1921. 


APPENDIX  H 

ANTI-TRUST  PROVISIONS  OF  WILSON  TARIFF  ACT  OF  AUGUST  27, 
1894,  AS  AMENDED  BY  THE  ACT  OF  FEBRUARY  12,  1913. 

[28  Stat.  570,  37  Stat.  667.] 

SEC.  73.  That  every  combination,  conspiracy,  trust,  agreement,  or 
contract,  is  hereby  declared  to  be  contrary  to  public  policy,  illegal,  and 
void  when  the  same  is  made  by  or  between  two  or  more  persons  or  cor- 
porations either  of  whom,  as  agent  or  principal,  is  engaged  in  importing 
any  article  from  any  foreign  country  into  the  United  States,  and  when 
such  combination,  conspiracy,  trust,  agreement,  or  contract  is  intended  to 
operate  in  restraint  of  lawful  trade,  or  free  competition  in  lawful  trade 
or  commerce,  or  to  increase  the  market  price  in  any  part  of  the  United 
States  of  any  article  or  articles  imported  or  intended  to  be  imported  into 
the  United  States,  or  of  any  manufacture  into  which  such  imported  article 
enters  or  is  intended  to  enter.  Every  person  who  is  or  shall  hereafter  be 
engaged  in  the  importation  of  goods  or  any  commodity  from  any  foreign 
country  in  violation  of  this  section  of  this  Act,  or  who  shall  combine 
or  conspire  with  another  to  violate  the  same,  is  guilty  of  a  misdemeanor, 
and  on  conviction  thereof  in  any  court  of  the  United  States  such  person 
shall  be  fined  in  a  sum  not  less  than  one  hundred  dollars  and  not  ex- 
ceeding five  thousand  dollars,  and  shall  be  further  punished  by  imprison- 
ment, in  the  discretion  of  the  court,  for  a  term  not  less  than  three  months 
nor  exceeding  twelve  months. 

SEC.  74.  That  the  several  circuit  courts  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  violations  of 
section  seventy-three  of  this  act;  and  it  shall  be  the  duty  of  the  several 
district  attorneys  of  the  United  States,  in  their  respective  districts,  under 
the  direction  of  the  Attorney  General,  to  institute  proceedings  in  equity 
to  prevent  and  restrain  such  violations.  Such  proceedings  may  be  by  way 
of  petitions  setting  forth  the  case  and  praying  that  such  violations  shall 
be  enjoined  or  otherwise  prohibited.  When  the  parties  complained  of  shall 
have  been  duly  notified  of  such  petition  the  court  shall  proceed,  as  soon 
as  may  be,  to  the  hearing  and  determination  of  the  case;  and  pending  such 
petition  and  before  final  decree,  the  court  may  at  any  time  make  such 
temporary  restraining  order  or  prohibition  as  shall  be  deemed  just  in  the 
premises. 

SEC.  75.  That  whenever  it  shall  appear  to  the  court  before  which  any 
proceeding  under  the  seventy-fourth  section  of  this  act  may  be  pending 
that  the  ends  of  justice  require  that  other  parties  should  be  brought  be- 
fore the  court,  the  court  may  cause  them  to  be  summoned,  whether  they 

321 


322  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

reside  in  the  district  in  which  the  court  is  held  or  not;  and  subpoenas  to 
that  end  may  be  served  in  any  district  by  the  marshal  thereof. 

SEC.  76.  That  any  property  owned  under  any  contract  or  by  any 
combination,  or  pursuant  to  any  conspiracy,  and  being  the  subject  thereof, 
mentioned  in  section  seventy-three  of  this  act,  imported  into  and  being 
within  the  United  States  or  being  in  the  course  of  transportation  from  one 
State  to  another,  or  to  or  from  a  Territory  or  the  District  of  Columbia, 
shall  be  forfeited  to  the  United  States,  and  may  be  seized  and  condemned 
by  like  proceedings  as  those  provided  by  law  for  the  forfeiture,  seizure,  and 
condemnation  of  property  imported  into  the  United  States  contrary  to 
law. 

SEC.  77.  That  any  person  who  shall  be  injured  in  his  business  or 
property  by  any  other  person  or  corporation  by  reason  of  anything  for- 
bidden or  declared  to  be  unlawful  by  this  Act,  may  sue  therefor  in  any 
circuit  court  of  the  United  States  in  the  district  in  which  the  defendant 
resides  or  is  found,  without  respect  to  the  amount  in  controversy,  and 
shall  recover  threefold  the  damages  by  him  sustained,  and  the  cost  of 
suit,  including  a  reasonable  attorney's  fee. 


APPENDIX  I 

PANAMA  CANAL  ACT 

[Act  of  Aug.  24,  1912   (37  Stat.  560).] 

AN  ACT  To  provide  for  the  opening,  maintenance,  protection,  and  operation 
of  the  Panama  Canal,  and  the  sanitation  and  government  of  the  Canal 
Zone. 


SEC.  11.  ...  No  vessel  permitted  to  engage  in  the  coastwise  or 
foreign  trade  of  the  United  States  shall  be  permitted  to  enter  or  pass 
through  said  canal  if  such  ship  is  owned,  chartered,  operated,  or  con- 
trolled by  any  person  or  company  which  is  doing  business  in  violation 
of  the  provisions  of  the  Act  of  Congress  approved  July  second,  eighteen 
hundred  and  ninety,  entitled  "An  Act  to  protect  trade  and  commerce 
against  unlawful  restraints  and  monopolies,"  or  the  provisions  of  sections 
seventy-three  to  seventy-seven,  both  inclusive,  of  an  Act  approved  August 
twenty-seventh,  eighteen  hundred  and  ninety-four,  entitled  "An  Act  to 
reduce  taxation,  to  provide  revenue  for  the  Government,  and  for  other 
purposes,"  or  the  provisions  of  any  other  Act  of  Congress  amending  or 
supplementing  the  said  Act  of  July  second,  eighteen  hundred  and  ninety, 
commonly  known  as  the  Sherman  Antitrust  Act,  and  amendments  thereto, 
or  said  sections  of  the  Act  of  August  twenty-seventh,  eighteen  hundred 
and  ninety-four.  The  question  of  fact  may  be  determined  by  the  judgment 
of  any  court  of  the  United  States  of  competent  jurisdiction  in  any  cause 
pending  before  it  to  which  the  owners  or  operators  of  such  ship  are 
parties.  Suit  may  be  brought  by  any  shipper  or  by  the  Attorney  General 
of  the  United  States.  . 


323 


APPENDIX  J 

CORRESPONDENCE  BETWEEN  DEPARTMENT  OF  COMMERCE  AND 
DEPARTMENT  OF  JUSTICE  UPON  THE  ACTIVITIES  OF  TRADE 
ASSOCIATIONS 

DEPAETMENT  OP  COMMERCE 

OFFICE  OF  THE  SECRETARY 

WASHINGTON 

February  3,  1922. 
My  dear  Mr.  Attorney  General: 

The  situation  regarding  the  activities  of  legitimate  trade  associations 
is  more  disturbing  now  than  at  any  time  since  we  first  discussed  the  matter, 
and  since  Mr.  Lamb  was  advised  by  Colonel  Goff  and  Mr.  Fowler  that  it 
was  your  desire  that  I  present  an  informal,  inter-departmental  inquiry  re- 
garding the  present  status  of  the  law  relating  to  legitimate  trade  asso- 
ciations and  the  extent  that  they  may  engage  in  legitimate  cooperative 
activities,  I  have  made  a  further  survey  of  the  matter,  and  the  questions 
hereinafter  presented  seem  to  me  to  be  vital  to  trade  associations  based 
on  present  information  secured  through  recent  investigation. 

It  may  not  be  out  of  place  to  call  your  attention  to  the  organic  act 
which  created  the  Department  of  Commerce,  which  imposed  upon  the 
Department  the  duty  "to  foster,  promote,  and  develop  the  foreign  and 
domestic  commerce,  the  mining,  manufacturing,  shipping,  and  fishery  in- 
dustries, and  the  transportation  facilities  of  the  United  States."  In  obey- 
ing the  commands  of  the  statute,  it  seemed  to  me  that  the  Department 
should  employ  all  available  legal  means  to  get  into  the  closest  possible 
touch  with  industry  in  all  its  forms  and  secure  the  best  information  pos- 
sible regarding  the  needs  and  necessities  of  trade  and  commerce.  If  the 
Department  has  to  help,  aid,  and  assist  industry,  it  must,  of  course,  be 
conversant  with  the  facts  and  conditions  influencing  the  carrying  on  of 
trade.  The  existence  of  a  large  number  of  trade  associations  being  well 
known  prompted  me  to  make  inquiry  regarding  their  forms  of  organiza- 
tion and  the  functions  they  were  performing  to  ascertain  whether  or  not 
they  could  be  utilized  as  a  means  for  securing  trade  information  that  would 
properly  aid  the  Department  in  performing  its  duties.  My  inquiry  into 
the  affairs  of  trade  associations  was  not  with  the  idea  of  creating  a  new 
scheme  for  carrying  on  business,  but  solely  for  the  purpose  of  ascertaining 
whether  or  not  they  could  properly  be  utilized  in  furnishing  information 
that  would  not  only  be  helpful  to  the  Department  and  to  the  commercial 
world  but  to  the  public  generally,  always  keeping  in  mind  that  whatever 
activities  were  carried  on  by  such  associations,  they  should  of  necessity  be 

324 


APPENDICES  325 

within  the  terms  of  existing  law.  In  the  course  of  my  inquiry,  I  discov- 
ered that  certain  trade  associations  were  involved  in  litigation  which  ques- 
tioned the  legality  of  their  performances,  and,  by  reason  of  the  litigation, 
there  was  much  doubt  and  confusion  regarding  the  legal  limits  within 
which  trade  associations  could  properly  operate.  This  situation  seemed  to 
call  for  conferences  with  your  Department,  which  you  have  graciously 
afforded,  and  although  no  definite  determination  has  heretofore  been 
reached  regarding  the  policy  to  be  pursued,  I  realize  the  difficulties  that 
confront  you  in  attempting  to  reach  a  proper  conclusion,  and  while  a 
public  announcement  from  you  would  have  been  most  helpful  to  all,  I  most 
heartily  acquiesce  in  your  suggestion  that  the  matter  be  presented  as  an 
informal,  interdepartmental  inquiry  for  my  guidance  in  performing  the 
duties  imposed  upon  me  by  the  organic  act  creating  this  Department. 

So  much  has  been  said  in  the  various  conferences,  coupled  with  lapse 
of  time,  in  order  to  obviate  excusable  failures  in  memory  as  to  the  matters 
that  have  heretofore  been  discussed  and  to  make  clear  the  position  and 
views  of  this  Department,  I  desire  to  offer  some  preliminary  observations 
regarding  trade  associations  before  asking  the  specific  questions  heretofore 
set  forth  in  various  informal  memoranda  and  upon  which  I  desire  the  in- 
formal expression  of  your  views. 

Commercial  progress  in  industry  has  always  been  measured  by  the  ad- 
vance in  knowledge  of  those  engaged  in  industry.  It  is  impossible  for  men 
to  acquire  or  secure  all  possible  knowledge  at  one  time.  Its  acquisition  is 
a  growth  resulting  from  continuous,  intelligent  inquiry.  The  knowledge  of 
an  industry  that  is  necessary  and  essential  to  its  success  must  embrace  all 
facts  and  circumstances  that  will  in  any  way  influence  that  industry. 
These  facts  and  circumstances  must  include  economic  conditions  as  well  as 
scientific  facts  to  the  extent  that  science  is  called  into  play  in  its  opera- 
tion and  all  commercial  conditions  that  make  for  efficient  production,  mer- 
chandising, and  distribution.  No  one  will  dispute  the  foregoing  statements; 
they  are  fundamental  and  necessary  to  the  life  of  trade  and  commerce. 

The  difficulty  seems  to  lie  in  the  determination  of  the  means  and 
methods  that  may  be  adopted  to  secure  this  necessary  information.  Little, 
if  any,  trouble  is  experienced  in  securing  the  admission  that  an  individual 
may  secure  knowledge  of  these  facts  by  any  means  that  would  not  consti- 
tute an  individual  crime,  and  that  he  may  use  the  information  in  such 
manner  as  his  best  judgment  may  tell  him  will  bring  him  the  greatest 
benefit. 

But  when  two  individuals  engaged  in  the  same  line  of  industry  under- 
take to  provide  a  means  for  securing  facts  necessary  and  essential  to  the 
economic  and  efficient  conduct  of  their  respective  organizations,  this  form 
of  endeavor  seems  to  at  once  assume  an  aspect  of  difficulty  that,  in  my 
judgment,  is  in  no  way  justified  by  a  proper  consideration  of  the  under- 
lying necessities  therefor. 

The  individual  sets  up  some  form  of  instrumentality  to  secure  the  in- 
formation without  which,  in  the  management  of  his  business,  he  would  be 


326  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

groping  in  the  dark.  His  competitor  across  the  street  does  the  same  thing, 
and  each,  securing  his  information  in  his  own  way,  uses  it  as  he  sees  fit, 
and  the  action  of  either  one  has  not  offended  the  majesty  of  the  law. 
Yet,  if  the  two  seek  to  join  the  instrumentality  each  has  used  for  informa- 
tion purposes  and  the  same  information  is  received  through  one  instru- 
mentality and  the  information  given  to  each  and  it  is  used  in  the  same 
way  that  it  was  before,  it  is  suggested  that  the  collective  activity  in  the 
use  of  the  consolidated  instrumentality  should  not  be  permitted  because 
of  the  greater  ease  and  facility  thereby  afforded  for  the  two  individuals  to 
make  improper  use  of  the  information  so  acquired.  In  other  words,  the 
objection  does  not  go  to  the  instrumentality,  but  to  the  abuse  of  the  in- 
formation that  may  be  secured  through  the  collective  means. 

The  principle  is  the  same  whether  two  or  two  hundred  join  together 
in  securing  the  information. 

No  form  of  legislation  has  ever  yet  been  devised,  nor  has  man,  with 
all  of  his  genius  for  invention,  even  been  able  to  devise  a  rule  or  regula- 
tion that  would  prevent  men  from  committing  crimes  if  they  are  so 
minded.  The  best  that  can  be  done  is  to  forbid  the  doing  of  certain 
acts  or  to  command  the  doing  of  others,  prescribing  proper  punishments  in 
the  case  of  the  commission  on  the  one  hand  and  the  omission  on  the 
other;  and  when  legislation  takes  that  form,  rules  and  regulations  and 
administrative  constructions  which  have  for  their  objective  the  making  of 
the  prohibited  thing  more  difficult  will  always  include  within  their  terms 
the  law-abiding  citizen  as  well  as  the  prospective  criminal. 

We  have  had  criminals  since  the  beginning  of  time,  and  human 
nature  can  not  be  changed  by  legislation.  The  criminally  inclined  repre- 
sent a  small  minority,  and  it  may  be  said  in  a  general  way  that,  except- 
ing offenses  against  persons  and  property,  most  of  the  criminal  statutes 
regulating  trade  and  commerce  and  forbidding  acts  that  seem  against 
sound  public  policy  have  been  made  necessary  for  the  control  of  the 
minority.  None  of  these  statutes,  however,  has  undertaken  to  prevent  the 
doing  of  a  thing  that  would  result  in  benefit  to  the  public,  but  the  restric- 
tion has  been  against  the  doing  of  the  thing  in  an  unlawful  way.  These 
statutes  have  not  condemned  lawful  institutions  or  instrumentalities  for 
the  carrying  on  of  commerce  merely  because  someone  might  possibly  abuse 
their  use.  The  laws  have  condemned  the  abuse,  and  punishments  have 
been  prescribed  for  those  who  may  be  found  guilty  of  the  abuse.  There- 
fore, the  fact  that  the  minority  may  be  known  to  violate  given  laws  does 
not  establish  a  principle  that  the  primary  means,  lawful  in  itself,  which 
they  have  adopted  for  the  purpose  of  performing  the  unlawful  acts,  should 
be  entirely  abolished  and  its  use  forbidden  by  law-abiding  citizens.  Each 
unlawful  use  of  the  means  is  merely  an  individual  case  of  the  violation 
of  a  law. 

Trade  associations  have  been  in  existence  for  many  years.  The  great 
majority  are  legitimate,  both  in  form  of  organization  and  in  activity. 
The  minority,  while  lawfully  organized  under  articles  expressing  lawful 


APPENDICES  327 

purposes,  may  engage  in  activities  that  are  evidence  of  purpose  contrary 
to  and  outside  of  the  declared  purposes  in  the  articles  of  organization. 

Again,  a  trade  association  may  have  lawful  form  of  organization  and 
the  activities  of  its  officers  may  be  clearly  within  the  purposes  declared  in 
the  association  charter,  and  yet  members  of  the  organization  may,  by 
unlawful  confederation,  use  the  information  lawfully  secured  for  unlawful 
purposes.  It  may,  therefore,  truthfully  be  said  that  the  line  dividing  the 
good  association  and  the  bad,  the  proper  activity  from  the  improper  one, 
and  the  lawful  activities  of  the  officers  of  an  association  from  the  unlawful 
acts  of  the  membership,  can  not  be  determined,  in  every  instance,  with 
singular  ease.  It  is  my  belief,  however,  that  it  is  more  easy  to  determine 
the  forms  of  organizations  and  activities  that  are  generally  recognized  as 
good  than  to  determine  in  advance  those  that  may  be  bad,  because  in 
the  latter  instance,  the  peculiar  facts  relating  to  each  association  the 
subject  of  inquiry  may  determine  whether  the  organization  or  its  members 
are  operating  in  violation  of  law. 

It  is  with  much  earnestness  that  I  claim  there  is  propriety,  generally 
speaking,  in  trade  associations.  Their  lawful  field  of  endeavor  is  large, 
and  their  activities  work  for  promotion  and  advancement  of  the  public 
welfare  and  for  progressive  economic  organization.  In  making  this  state- 
ment, I  am  not  unmindful  of  the  fact  that  the  impression  exists  with  a 
small  minority  that  individual  prohibited  acts  may  be  accomplished  by 
organization  under  the  disguise  of  a  trade  association.  However,  to  make 
my  position  clear  regarding  the  trade  associations,  the  existence  of  which 
I  advocate,  I  desire  to  say  that  I  have  always  taken  the  view  that  no 
body  of  men  could  combine  in  the  form  of  a  trade  organization  and  do 
any  act  or  thing  forbidden  by  law  if  they  were  undertaken  by  them  out- 
side of  a  trade  organization.  The  character  of  trade  organization  the 
existence  of  which  should  be  preserved  is  one  that  carries  lawful  purposes 
only  in  its  articles  of  association;  its  activities  must  be  in  harmony  with 
its  declared  purposes.  The  articles  of  association,  with  their  lawful,  de- 
clared purposes,  must  not  be  used  as  a  mask  to  hide  unlawful  purposes. 
In  other  words,  the  organization  can  not  be  used  to  conceal  or  disguise  any 
contract,  combination,  conspiracy,  agreement,  or  understanding,  secret  or 
otherwise,  on  the  part  of  the  officers  of  the  organization  or  on  the  part 
of  the  membership  or  any  part  thereof  to  engage  in  activities  in  restraint 
of  trade  or  otherwise  in  violation  of  the  anti-trust  laws. 

There  has  been  much  information  collected  by  legitimate  trade  associa- 
tions in  which  the  general  public  has  no  interest  whatsoever,  yet  informa- 
tion of  this  class  has  always  been  freely  offered  to  the  daily  and  the  trade 
press,  as  well  as  to  any  governmental  agency  that  might  desire  the  in- 
formation as  a  matter  of  statistical  record.  On  the  other  hand,  certain 
statistical  data  are  collected  by  trade  organizations  that  would  be  of  vast 
value  to  the  public  generally  if  published  in  practical,  available  form. 

Many  of  the  trade  associations  securing  and  disseminating  the  statis- 
tical data  mentioned  have  restricted  the  same  to  its  membership,  while 


"• La 


328  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

others  have  undertaken  to  give  the  same  to  the  public  through  the  daily 
and  the  trade  press  concurrently  with  its  members.  The  trade  associations 
of  the  latter  class  are  in  the  minority. 

Information  lawfully  secured  regarding  trade  and  economic  conditions 
de  public  for  the  information  of  everyone  can  not  be  harmful.  Informa- 
tion secured  solely  for  the  benefit  of  members  and  of  a  character  that  puts 
the  membership,  by  reason  of  the  information,  in  a  position  of  advantage 
as  compared  with  the  public  without  such  information  can  not  be  sanc- 
tioned by  sound  public  policy.  The  act  of  securing  the  information  and 
the  use  of  it  by  the  members  of  a  particular  organization  may  be  perfectly 
lawful  in  itself,  but  it  is  my  belief  that  good  morals  and  a  sense  of  fair 
dealing  require  the  giving  of  the  information  secured  in  this  collective 
manner  to  the  public  generally,  to  the  end  that  all  persons  engaged  in 
commercial  transactions  involving  the  information  in  question  will  be  on  an 
even  footing. 

The  activities  of  trade  associations  that  have  received  the  greatest 
criticism  involve  the  collection  of  statistics  relating  to  volume  of  produc- 
tion, capacity  to  produce  by  districts  of  production,  wages,  consumption 
of  products  in  domestic  and  foreign  trade,  distribution  thereof  including 
volume  of  distribution  by  districts,  together  with  figures  as  to  stocks  on 
hand,  wholesale  and  retail,  by  districts,  coupled  with  information  as 
to  price,  either  in  the  form  of  individual  reports  of  each  member  dis- 
tributed to  every  other  member  or  the  individual  prices  reported  to  the 
association  and  by  the  latter  compiled  and  averaged  by  districts  for  cer- 
tain specified  periods. 

If  information  regarding  production,  capacity,  and  distribution  by 
districts,  with  average  prices  for  grades,  brands,  sizes,  styles,  or  qualities 
sold  in  the  respective  districts  for  specified  periods  of  time  could  be  given 
to  the  public  at  the  same  time  that  such  information  is  available  to 
the  members  of  an  association,  in  my  judgment,  great  public  good  would 
result.  With  this  information  available,  everyone  dealing  in  the  products 
of  a  given  industry,  whether  buyer  or  seller,  would  have  the  same  informa- 
tion regarding  conditions  and,  in  dealing  with  one  another,  would  have 
knowledge  of  the  same  facts  upon  which  to  form  their  judgments  as  to 
the  proper  course  to  pursue. 

A  majority  of  the  associations  collecting  data  of  the  nature  indicated 
have  distributed  same  only  to  members  of  the  association,  while  others 
have  undertaken  to  give  the  information  to  the  public  through  the  daily 
and  trade  papers.  Publication  of  the  information  by  these  associations  in 
the  daily  press  has  not  been  general,  and  its  availability  to  the  public 
has  been  largely  through  the  medium  of  trade  papers,  and  through  the 
daily  press  to  the  extent  that  the  latter  may  have  been  utilized.  When 
published  through  trade  papers  this  information  should  be  released  to 
members  only  after  such  publication. 

It  should  be  borne  in  mind  that  the  criticism  aimed  at  this  form  of 
activity  has  not  involved  the  instrumentality  for  securing  it  or  the  sub- 


APPENDICES  329 

ject  matter  of  the  information,  but  has  been  directed  to  the  use  or  possible 
use  that  might  be  made  of  the  information  and  the  fact  that  no  means 
existed  for  distributing  the  information  to  the  public  at  the  same  time 
that  it  was  received  by  the  members  of  the  association.  These  observations 
likewise  apply  to  the  criticisms  directed  to  the  furnishing  of  average  price 
of  given  commodities  according  to  grade,  size,  brand,  or  quality  by  districts 
for  specified  periods  of  time,  based  on  past  and  closed  transactions. 

With  these  observations,  which  have  been  extended  at  greater  length 
than  I  intended,  I  desire  the  informal  expression  of  your  views  as  to  the 
following  activities  on  the  part  of  trade  associations  and  their  members 
wherein  neither  the  form  of  the  association  nor  the  activity,  which  appear 
perfectly  fair  and  lawful  on  the  surface,  is  used  to  hide  or  conceal  some 
contract,  combination,  conspiracy,  agreement,  or  understanding,  secret  or 
otherwise,  on  the  part  of  the  association,  the  membership,  or  any  part 
thereof  to  actually  restrain  trade  or  otherwise  violate  the  Sherman  Act: 

(1)  May  a  trade  association  provide  for  its  members  a  standard  or 
uniform  system  of  cost  accounting  and  recommend  its  use,  provided  that 
the  costs  so  arrived  at  by  the  uniform  method  are  not  furnished  by  the 
members  to  each  other  or  by  the  members  to  the  association  and  by  the 
latter  to  the  individual  members  ? 

(2)  May* a  trade  association  advocate  and  provide  for  uniformity  in 
the  use  of  trade  phrases  and  trade  names  by  its  respective  members  for 
the  purpose  of   ending  confusion  in  trade  expressions   and   for   harmony 
of  construction  as  to  the  meaning  of  trade  phrases,  names,  and  terms? 

(3)  May  a  trade  association,  in  cooperation  with  its  members,  advo- 
cate and  provide  for  the  standardization  of  quality  and  grades  of  product 
of  such  members,  to  the  end  that  the  buying  public  may  know  what  it  is 
to  receive  when  a  particular  grade  or  quality  is  specified;  and  may  such 
association,  after  standardizing  quality  and  grade,  provide  standard  form 
of  contract  for  the  purpose  of  correctly  designating  the  standards  of  qual- 
ity and  grades  of  product;  and  may  it  standardize  technical  and  scientific 
terms,  its  processes  in  production,  and  its  machinery;  and  may  the  asso- 
ciation cooperate  with  its  members  in  determining  means  for  the  elimina- 
tion of  wasteful  processes  in  production  and  distribution  and  for  the  rais- 
ing of  ethical  standards  in  trade  for  the  prevention  of  dishonest  practices? 

(4)  May   a   trade   association   collect   credit   information    as    to   the 
financial  responsibility,  business  reputation,  and  standing  of  those  using 
the  products  of  the  industry ;   and  may  the  association  furnish  such   in- 
formation to  individual  members  upon  request  therefor,  provided  such  in- 
formation is  not  used  by  the  association  or  the  members  for  the  purpose 
of  unlawfully  establishing  so-called  "blacklists?" 

(5)  May  a  trade  association  arrange  for  the  handling  of  the  insurance 
of  its  members,  including  fire,  industrial,  indemnity,  or  group  insurance? 
In  other  words,  can  the  members  of  an  industry,  through  the  agency  of  a 
trade  association,  arrange  for  or  place  all  of  the  insurance  of  the  members? 

(6)  May  a  trade  association,  in  cooperation  with  its  members,  engage 


330  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

in  cooperative  advertising  for  the  promotion  of  trade  of  the  members  of 
that  association  engaged  in  the  particular  industry;  and  may  the  associa- 
tion engage  in  such  form  of  promotion  by  furnishing  trade  labels,  designs, 
and  trade-marks  for  the  use  of  its  individual  members  ? 

(7)  May  a  trade  association,  for  and  in  behalf  of  its  members,  en- 
gage in  the  promotion  of  welfare  work  in  the  plants  or  organizations  of 
its  members,  which  welfare  work  includes  sick  benefits  and  unemployment 
insurance  for  employees,  uniform  arrangements  for  apprenticeship  in  trade 
education,  the  prevention  of  accident  and  the  establishment  of  an  employ- 
ment department  or  bureau  for  cooperation  with  employees? 

(8)  May  a  trade  association,  in  cooperation  with  its  members  and 
acting  for  and  in  behalf  of  its  members,  handle  all  legislative  questions 
that  may  affect  the  particular  industry,  regarding  factories,  trades,  tariff, 
taxes,  transportation,  employers'  liability  and  workmen's  compensation,  as 
well  as  the  handling  of  rate  litigation  and  railroad  transportation  ques- 
tions ? 

(9)  May  a  trade  association,  in  cooperation  with  its  members  and  act- 
ing for  and  in  their  behalf  undertake  the  promotion  of  closer   relations 
between  the  particular  industry  and  the  federal  and  the  state  departments 
of  government  which  may  have  administration  of  laws  affecting  the  par- 
ticular industry  in  any  form? 

(10) — A.  May  a  trade  association  collect  statistics  from  each  mem- 
ber showing  his  volume  of  production,  his  capacity  to  produce,  the  wages 
paid,  the  consumption  of  his  product  in  domestic  or  foreign  trade,  and  his 
distribution  thereof,  specifying  the  volume  of  distribution  by  districts, 
together  with  his  stock,  wholesale  or  retail? 

B.  And   may   such   trade   association,   on   receipt  of   the    individual 
reports  of  each  member,  compile  the  information  in  each  report  into  a 
consolidated  statement  which  shows  the  total  volume  of  production  of  the 
membership,  its  capacity  to  produce  by  districts  of  production,  which,  in 
some  instances,  include  a  state  or  less  area,  the  wages  by  districts  of  pro- 
duction,  the   consumption   in  foreign  or   domestic   trade  by  districts,    the 
volume  of  distribution  by  districts,  and  the  stocks  on  hand,  wholesale  and 
retail,  by  districts? 

C.  And  if,  after  compiling  the  information  as  aforesaid,  the  informa- 
tion received  from  the  members  as  well  as  the  combined  information  is  not 
given  by  the  association  to  any  other  person,  may  it  then  file  the  com- 
bined statement  with  the  Secretary  of  Commerce  for  distribution  by  him 
to  the  members  of  the  association  through  the  public  press  or  otherwise 
and  to  the  public  generally  and  to  all  persons  who  may  be  in  any  way 
interested  in  the  product  of  the   industry,   it  being  understood   that  the 
individual  reports  for  the  members  should  cover  either  weekly,  monthly, 
quarterly,  or  longer  periods  as  may  be  deemed  desirable  by  the  members, 
and,  when  a  period  is  adopted,  the  report  for  each  member  shall  cover  that 
period,  and  the  combined  report  shall  be  for  that  period? 

(11) — A.     May  a  trade  association,  at  the  time  it  collects  the  pro- 


APPENDICES  331 

duction  and  distribution  statistics  above  outlined,  at  the  same  time  have 
their  members  report  the  prices  they  have  received  for  the  products  they 
have  sold  during  the  period  taken,  specifying  the  volume  of  each  grade, 
brand,  size,  style,  or  quality,  as  the  case  may  be,  and  the  price  received 
for  the  volume  so  sold  in  each  of  the  respective  districts  where  the  product 
is  sold? 

B.  And  may  the  association,  without  making  known  to  any  person 
the  individual  price  reports  of  any  member,  consolidate  all  of  the  reports 
into  one,  and   show   the   average   price   received   for   the   total   volume  of 
each,  grade,  brand,  size,  style,  or  quality,  as  the  case  may  be,  distributed 
in  each  district  covered  by  the  distribution  statistics  for  the  period  cov- 
ered by  each  individual  report? 

C.  And  may  the  association,  after  making  such  compilation,  send  the 
compiled  report  as  to  average  price,  as  aforesaid,  to  the  Secretary  of  Com- 
merce, to  be  by  him  distributed  to  the  public  and  to  any  or  all  persons 
who  may  be  interested  in  the  particular  industry  making  the  reports? 

In  order  to  avoid  repeating  this  question  in  connection  with  each  one 
of  the  activities  outlined  in  the  eleven  preceding  questions,  may  trade 
associations  engage  in  any  or  all  of  the  activities  named  without  violating 
the  law,  provided  the  organization  and  the  activity  engaged  in  are  not 
for  the  purpose  of  hiding  or  concealing  some  agreement,  contract,  etc.,  to 
actually  restrain  trade  or  otherwise  violate  the  anti-trust  laws? 

As  stated  in  the  beginning,  I  do  not  ask  you  to  express  your  views 
in  a  formal  opinion,  but  it  is  my  hope  that  you  may  see  your  way  clear 
to  give  me  the  advice  that  will  enable  me  to  adopt  the  proper  adminis- 
trative action  in  undertaking  the  duties  imposed  upon  the  Secretary  of 
Commerce  by  the  organic  act  creating  the  Department.  It  is  unnecessary 
for  me  to  say  that  the  general,  unsettled  condition  regarding  the  proper 
provinces  of  trade  associations  justifies  as  early  a  reply  to  these  inquiries 
as  your  other  numerous  official  duties  will  permit. 

Yours  faithfully, 

HEEBEET  HOOVEB, 

Secretary  of  Commerce. 
Honorable  Harry  M.  Daugherty, 
Attorney  General, 

Department  of  Justice, 
Washington,  D.  C. 

OFFICE  OF  THE  ATTORNEY  GENERAL 
WASHINGTON,  D.  C. 

February  8,  1922. 
My  dear  Mr.  Secretary: 

Your  communication  of  the  3rd  instant  relating  to  the  practices  in 
which  trade  associations  may  lawfully  engage  was  received.  I  recognize 


332  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

the  force  of  your  able  discussion  of  the  subject,  and  after  careful  considera- 
tion of  the  several  activities  which  you  suggest  can  be  exercised  lawfully, 
I  beg  to  say: 

With  reference  to  the  first  paragraph,  there  is  no  apparent  objection 
to  a  standard  system  of  cost  accounting,  but  I  think  associations  should 
be  warned  to  guard  against  uniform  cost  as  to  any  item  of  expense.  For 
illustration,  a  strong  effort  has  been  made  by  some  lumber  associations  to 
take  as  a  basis  for  estimating  costs  of  production  a  uniform  charge  for 
stumpage.  Of  course  the  cost  of  the  timber  in  the  tree  to  the  different 
manufacturers  who  own  their  timber  in  the  woods  greatly  varies;  and  as 
to  each  it  should  be  charged  at  its  actual  cost.  It  is  as  clearly  a  viola- 
tion of  the  law  to  agree  upon  the  cost  of  an  item  that  constitutes  a  sub- 
stantial part  of  the  total  cost  price  when  its  cost  actually  varies,  as  to 
agree  upon  the  sales  price,  because  the  sales  price  is  substantially  affected 
by  such  agreement.  It  has  been  ascertained  that  the  members  of  one  asso- 
ciation go  so  far  as  to  fix  a  uniform  cost  price,  leaving  to  each  member 
to  determine  what  per  cent  profit  he  will  add,  thus  eliminating  entirely 
competition  in  so  far  as  affected  by  the  cost  of  production. 

Furthermore,  I  have  serious  doubts  about  the  advisability  of  the  latter 
part  of  the  sixth  paragraph.  I  can  see  no  objection  to  cooperative  adver- 
tising designed  to  extend  the  markets  of  the  particular  article  produced  or 
handled  by  the  members  of  an  association,  but  when  the  several  producers 
or  dealers  use  uniform  trade  labels,  designs  and  trade-marks  it  seems  to 
me  the  inevitable  result  would  be  a  uniformity  of  price.  Where  two  com- 
peting articles  are  advertised  in  precisely  the  same  way  and  bear  exactly 
the  same  label  or  trade-mark,  it  certainly  would  be  difficult  for  one  to  be 
sold  at  a  higher  price  than  the  other,  although  its  quality  may  be  superior. 
In  a  way  this  is  illustrated  in  the  cement  industry.  There  a  standard  of 
quality  has  been  adopted.  That  is,  it  is  necessary  for  all  cement  to  comply 
with  a  certain  standard,  but  in  practice  no  manufacturer  undertakes  to 
make,  or  at  least  no  one  advertises  that  he  does  make,  a  grade  of  cement 
superior  to  that  standard.  The  result  is  that  there  is  no  competition  in 
the  sale  of  cement  so  far  as  quality  is  concerned.  It  seems  to  me  there- 
fore that  it  would  be  well  to  eliminate  the  latter  clause  in  paragraph  six, 
to  wit,  "and  may  the  association  engage  in  such  form  of  promotion  by 
furnishing  trade  labels,  designs  and  trade-marks  for  the  use  of  its  indi- 
vidual members?" 

I  can  now  see  nothing  illegal  in  the  exercise  of  the  other  activities 
mentioned,  provided  always  that  whatever  is  done  is  not  used  as  a  scheme 
or  device  to  curtail  production  or  enhance  prices,  and  does  not  have  the 
effect  of  suppressing  competition.  It  is  impossible  to  determine  in  advance 
just  what  the  effect  of  a  plan  when  put  into  actual  operation  may  be. 
This  is  especially  true  with  reference  to  trade  associations,  whose  members 
are  vitally  interested  in  advancing  or,  as  they  term  it,  stabilizing  prices, 
and  who  through  the  medium  of  the  associations  are  brought  into  personal 
contact  with  each  other.  Therefore  the  expression  of  the  view  that  the 


APPENDICES  333 

things  enumerated  by  you,  with  the  exceptions  stated,  may  be  done  law- 
fully is  only  tentative;  and  if  in  the  actual  practice  of  any  of  them  it 
shall  develop  that  competition  is  suppressed  or  prices  are  materially  en- 
hanced, this  Department  must  treat  such  a  practice  as  it  treats  any  other 
one  which  is  violative  of  the  Anti-Trust  Act. 

Yours  sincerely, 

H.  M.  DAUGHERTY, 

Attorney  General. 
Hon.  Herbert  Hoover, 

Secretary  of  Commerce, 
Washington,  D.  C. 


DEPARTMENT  OF  COMMERCE 

OFFICE  OF  THE  SECRETARY 

WASHINGTON 

February  9,  1922. 
My  dear  Mr.  Attorney  General: 

I  have  your  letter  of  the  eighth  instant,  in  reply  to  my  letter  to  you 
of  February  3,  1922,  in  which  I  made  informal  inquiry  as  to  the  legality  of 
certain  activities  of  trade  associations  enumerated  in  eleven  questions.  It 
is  very  pleasing  to  me  to  note  that  our  views  regarding  these  matters  are 
in  such  close  harmony. 

Your  observations  regarding  the  last  clause  in  question  (6)  in  my 
letter  are  wholly  sound,  based  on  the  language  of  that  clause.  It  was  not, 
however,  my  idea  that  each  constituent  member  of  a  trade  association 
would  use  a  community  trade-mark  on  his  product,  i.e.,  the  same  trade- 
mark that  was  used  by  every  other  member  of  the  association,  and,  there- 
fore, the  last  clause  in  that  question  was  unhappily  worded.  The  question 
really  relates  to  trade  promotion  through  cooperative  advertising,  in  which 
certain  trade  slogans  are  used,  such  as,  "Made  in  Grand  Rapids,"  which 
was  adopted  by  the  furniture  manufacturers  at  that  furniture  center. 
Generally,  activities  covered  in  question  (6)  are  conducted  by  a  trade 
association  in  a  given  local  community.  An  organization  at  Chicago  ad- 
vertises for  its  entire  membership,  which  includes  every  line  of  commer- 
cial endeavor  in  Chicago,  that  the  City  is  the  great  central  market.  It 
is  cooperative  advertising  of  this  class  that  tends  to  promote  trade  exten- 
sion in  given  lines  or  collected  lines  of  industry.  Certain  of  the  trade  asso- 
ciations, however,  do  devise  trade-marks,  not  for  use  by  all  members  but  for 
individual  members.  It  is  a  well-known  fact  that  when  some  manufacturer 
or  producer  is  fortunate  enough  to  select  a  trade-mark  that  appeals  to  the 
public,  it  becomes  a  great  aid  in  selling  his  commodity  and,  as  a  result, 
it  is  well  advertised  until  it  becomes  a  household  word.  Other  producers 


334  TRADE  ASSOCIATION  ACTIVITIES  AND  THE  LAW 

or  manufacturers  of  the  same  kind  of  an  article,  in  order  to  take  advantage 
of  this  situation,  will  devise  a  trade-name  or  trade-mark  as  near  to  that 
of  the  successful  competitor  as  he  thinks  he  can  go  and  still  escape  suit 
under  the  trade-mark  or  unfair  competition  laws.  The  activities  of  a 
trade  association  regarding  trade-marks  to  which  I  referred  in  my  letter 
of  the  third  relate  to  the  straightening  out  of  instances  of  unfair  com- 
petition or  infringement  as  between  the  members  by  undertaking  to  design 
trade-marks  for  the  individual  members  of  the  association  making  the  same 
product  that  would  absolutely  prevent  confusion  on  the  part  of  the  public 
as  to  the  producer  or  manufacturer  of  the  given  article  and,  at  the  same 
time,  remove  all  claim  of  infringement  or  unfair  competition.  In  other 
words,  the  trade-mark  activity  referred  to  was  that  of  making  the  trade- 
marks of  each  individual  member  distinctive  instead  of  common.  You 
may,  therefore,  consider  the  part  of  my  question  (6)  referred  to  in  your 
letter  as  eliminated  from  the  question,  and  that  the  question  was  really 
intended  to  cover  the  matters  stated  herein.  With  this  explanation,  I  feel 
sure  you  will  agree  with  me  that  our  views  on  the  matters  presented  are 
in  complete  accord. 

Yours  faithfully, 

HERBEET  HOOVEB, 

Secretary  of  Commerce. 
Honorable  Harry  M.  Daugherty, 
Attorney  General, 

Department  of  Justice, 
Washington,  D.  C. 


OFFICE  OF  THE  ATTORNEY  GENERAL 
WASHINGTON,  D.  C. 

February  9,  1922. 
My  dear  Mr.  Secretary: 

Your  letter  of  the  9th  instant  relating  to  paragraph  six  of  the  ques- 
tions you  had  previously  propounded  with  reference  to  the  activities  of 
trade  associations  was  duly  received,  and  in  reply  thereto  I  will  say: 

Not  being  familiar  with  the  practices  of  such  associations  in  respect  to 
trade-names,  trade-marks,  labels,  etc.,  I  did  not  clearly  understand  the 
meaning  of  the  latter  clause  of  paragraph  six,  and  your  explanation  places 
the  matter  in  a  somewhat  different  light.  However,  I  hardly  feel  that  I 
can  express  assent  to  the  adoption  of  a  rule  by  a  trade  association  or  to 
its  membership's  engaging  in  a  practice  whereby  the  difference  between 
trade-names,  trade-marks,  labels,  etc.,  used  by  the  different  members  of  an 
association  and  questions  of  unfair  practices  arising  out  of  such  use  may 
be  determined  by  the  association  or  a  body  constituted  by  it,  and  a  resort 
to  the  courts  by  those  believing  themselves  aggrieved  for  the  determination 


APPENDICES  335 

of  such  questions  of  unfair  practices,  be  prevented.  It  seems  to  me  that 
if  it  were  recognized  that  associations  could  exercise  such  a  power  a  door 
would  be  opened  for  the  adoption  of  many  schemes  the  use  of  which  might 
result  in  the  regulation  of  prices  and  the  suppression  of  competition.  The 
principles  adopted  by  the  courts  with  reference  to  such  practices  are  well 
defined  and  the  courts  are  open  at  all  times  for  the  redress  of  such  in- 
juries, while  an  association  has  no  fixed  principle  for  its  guidance,  and 
it  would  be  inclined  to  take  such  action  as  would  best  conserve  the  interests 
of  the  several  members. 

However,  I  can  see  no  objection  whatever  to  cooperative  advertising  by 
community  trade-marks  or  trade-names  as  illustrated  in  your  communi- 
cation. 

Yours  very  sincerely, 

H.  M.  DAUGHEBTY, 

Attorney  General. 
Honorable  Herbert  Hoover, 
Secretary  of  Commerce, 
Washington,  D.  C. 


INDEX 


Academy  of  Labor,  Czecho  Slovakia, 

123 

Accident  Prevention,  131,  134 
Accountants — 

Employment  of  for  cost  systems, 

71,  75 
Employment  of  in  compilation  of 

facts,  56 

Accuracy,   of   business    facts,   neces- 
sity for,  60 

Adoption,  method  of,   uniform  con- 
tracts,  215 

Adulteration,    detection    of    by    re- 
search, 113 
Advertising — 

Agency,  need  of,  165 
Benefits  of,  148 
Campaign,  length  of,  165 
Conditions  of  labor,  use  to  secure 

better,   159 
Control  of,   165 
Dangers  of,   164 
Demand,  creation  of,  149 
Demand,  enlargement  of,  149 
Demand,  modification  of  seasonal, 

151 

Distribution,  control  of,    158 
Distribution,  importance  to,  148 
Distributors,  education  of,  151 
Financing,    161 
Foreign  mediums,   data  by  assn., 

222 

Good  will,  protection  of,  154 
Information,   public   re  problems, 

156 

Labor  supply,  use  to  secure,  159 
Legality,  166,  332 
Legislation,  combatting  of,  156 
Methods,  164 

Methods,  of  financing,  161 
Methods  of  sale,  education  re,  152 
Opinion  Attorney  General  in   re, 

332 

Personnel,  effect  on,  160 
Prejudice,  overcoming,  152,  158 
Preparation,  education  re  proper 
methods  of,  151 


Advertising    ( Cont . ) 

Protection  against  competing  in- 
dustries, 153 
Public,  education  of,  157 
Public,   medium  of  contact  with, 

155 

Publicity  of  plan,  165 
Quality,  improvement  of  by,  154 
Regulation  of  by  associations,  167 
Results  of,  159 
Services,  education  as  to  value  of, 

157 

Slogans,  164 
Statutes  re  false,  167 
Suggestions  re  campaign,   165 
Trademark,  association,  154 
Unity,  need  for,  166 
Uses,  education  as  to  new,  150 
Uses  of  cooperative,  149  ff. 
Waste  of,  148 
Advice,  outside  parties,  arbitrators 

may  seek^  207 

Agreements  affecting  price,  249 
Association  with  labor,  149 
Dividing  territory,  246 
Fixing  elements  of  cost,  76 
Fixing  margin  of  profits,  249 
Fixing  uniform  costs,  249 
Fixing  price,  248 
For     discriminatory     prices     for 

assn.  members,  270 
For  exclusive  dealing,  264 
Of  submission  to  arbitration,  203 
To  confine   purchases   or   sales   to 

assn.  members,  262 
To  maintain   resale  prices,   250 
To  refrain  from  bidding,  258 
To  refrain    from    giving    service, 

260 

To  refrain  from  selling,  247 
To  refrain  from  selling  decidedly 

below  prevailing  prices,  249 
Trust,  244 

With  employees  to  restrict  pro- 
duction, 248 

With  labor  union  to  discriminate 
in  favor  of  assn.  members, 
269 


337 


338 


INDEX 


Agricultural  associations — 
Act  of  Feb.  8,  1922,  13 
Clayton  Act,  Sec.  6,  13 
Exception  to  Sherman  Act  as  to, 

13 
Exemption  of,  text  Clayton  Act, 

281 

Text  Capper-Volstead  Act,  295 
Agriculture,  Department  of — 

Cooperation  in  research,  117,  118 
Reporting  system,  57 
Standardization   work,   99 
Alaska — 

Export    assn.    cannot    export    to, 

231 

Export    assn.    formation    in    per- 
mitted, 231 

Alfalfa   Growers   of   California,   ad- 
vertising,   157 
Allied  Broom  Industry,  advertising, 

153,  163 

Alloys  Research  Assn.,  106,  115 
Allotment  of  customers,  247 
Ambiguity  arbitration  award,  209 
Am.  Assn.  Advertising  Agencies,  ad- 
vertising,  154,   157 
Am.  Assn.    Creamery    Butter    Mfrs. 

research,   120 
Am.  Assn.  of  Ice  &  Refrigeration, 

research,   110 

Am.  Assn.  of  Nurserymen — 
Arbitration,  202 
Collections,  182 
Nomenclature,  81 
Am.    Assn.    Photo-Engravers,    joint 

council,  142 
Am.  Assn.  Woolen  &  Worsted  Mfrs., 

credit  bureau,  181 
Am.    Bankers'    Assn.,    advertising, 

150,  157 

Am.  Ceramic  Society,  research,  115 
Am.  Concrete  Institute — 
Nomenclature  standards,  82 
Standards  of  practice,  85 
Am.  Concrete  Pipe  Assn.,  labor  dis- 
cussions, 130 

Am.  Construction  Council — 
Code  of  ethics,  38 
Formation,  145 
Organization,  240 

Am.  Cotton  Waste  Exchange,  arbi- 
tration, 210 

Am.  Cranberry  Exchange,  advertis- 
ing, 150,  154,  161 

Am.  Dairy  Research  Institute,  107 
Am.  Drug  Mfrs.  Assn. — 
Labor  policy,  129 
Research,  114 


Am.  Drug  Mfrs.  Assn.   (Cont.) 

Trademark  Bureau,  188 
Am.    Engineering    Standards    Com- 
mittee— 
Membership,  97 
Purpose,  97 
Procedure,  98 
Am.  Face  Brick  Assn.,  advertising, 

153,  163 
Am.  Fair  Trade  League,  campaign 

honest  advertising,  167 
Am.  Hardwood  Mfrs.  Assn. — 
Advertising,  152,  160 
Open  price  plan,  59 
Am.  Iron  &  Steel  Institute,  research, 

113 

Am.  Institute  of  Accountants,  73 
Am.    Institute    of    Architects,    Nat. 

Board  Juris.  Awards,  137 
Am.   Institute    of    Electrical   Engi- 
neers,   cooperation    with    in- 
dustry in  fixing  standards,  97 
Am.  Fed.  of  Labor — 

American    Construction    Council, 

145 

Nat.  Board  Juris.  Awards,  137 
Research,  111,  103 
Am.  Foundrymen's  Assn.,  labor  dis- 
cussions, 130 

Am.  Institute  of  Mining  and  Metal- 
lurgical   Engineers,    coopera- 
tion in  research,  107 
Am.  Lumber  Congress — 
Organization,  240 
Trading  rules,  213 
Am.  Milk  Products  Corporation,  225 
Am.  Mining  Congress,  labor  discus- 
sions, 130 

Am.  National  Live  Stock  Assn.,  ad- 
vertising, 150 
Am.      National      Retail      Jewelers 

Assn. — 

Bookkeeping  forms,  72 
Cost  accounting,  71 
Am.  Oil  Chemists'  Society,  research, 

114 
Am.  Optometric  Assn.,  advertising, 

157 

Am.  Paper  Exports,  Inc.,  227 
Am.  Pulp  &  Paper  Assn.,  cost  ac- 
counting, 72 
Am.     Railway    Perishable     Freight 

Assn.,  research,  110 
Am.  Railway  Assn.,  government  re- 
lations, 240 

Am.     Society    of    Civil    Engineers, 
work  on  cement  standards,  83 


INDEX 


Am.    Society    of    Mechanical    Engi- 
neers,   cooperation    with    in- 
dustry in  fixing  standards,  97 
Am.  Society  for  Testing  Materials — 
Cooperation  with  industry  in  fix- 
ing standard  specifications,  97 
Work  on  cement  standards,  83 
Am.  Telephone  and  Telegraph   Co., 

research,  104 

Am.  Wholesale  Lumber  Assn. — 
Advertising,  154,  162 

Trademark,  155 
Arbitration,    195,    200,    202,    204, 

205,  210,  211 
Cost  accounting,  68,  71 
Traffic,  175 

Uniform  contracts,  215 
Anthracite    General    Policies    Com- 
mittee, advertising,  156 
Appeal,  arbitration,  210  ff 
Appointment,  arbitrators,  201 
Apportionments   supply  by  packers 

unlawful,  310 

Apprentices,     policy     Assoc.     Con- 
tractors,  131 
Apprenticeship,   135 
Arbitration,  commercial — 

Advice,  outside  parties,  arbitrat- 
ors may  seek,  207 
Agreement  of  submission  to,  203 
Ambiguity  in  award,  209 
Appeal,  210  ff. 

Appointment  of  arbitrators,  201 
Arbitrators,  201,  203 
Argument,  right  to,  205 
Attorney,  conference  with,  of  one 

party,  206 

Attorney,  ^ight  to,  205 
Award,  20j    ff. 
Award,    must    cover    all   matters 

submitted,  209 
Benefits  of,  195 
Committees  of,  202 
Compulsory,  199 
Conditional  awards,  209 
Contracts,  clause  in,  195,  197 
Counsel,  right  to,  205 
Customs,  development  of,  196 
Decisions,  more  fair,  195 
Development  of,  193 
Disputes,  elimination  of,  196 
Elimination  expense,  195 
Employment,    outside    parties    by 

arbitrators,    207 
Enforcement  of  award,  211 
England,  wide  use  in,  197 
Evidence,  admissible,  206 


Arbitration,  Commercial  (Cont.) 

Evidence,  statement  of  in  award, 
207 

Evidence,  time  allowed  for  prepa- 
ration, 206 

Ex  parte  hearing,  206 

Expulsion  for  failure  to  abide  by 
award,  211 

Foreign  trade,  arbitration  in,  198 

Formal,   199 

Form  of  award,  207 

Hearing,  204 

Informal,  199 

Instructions  to  arbitrators,  211 

Inter-association,  193 

Interest,  right  to  award,  209 

International,  198 

Law,  consideration  of  in,  200 

Legality  of,  211 

Method    of    conducting    hearing, 
205 

Mistake,  effect  of  on  award,  207 

Notice  of  hearing,  206 

Organization  of  system,   198 

Payment  of  award,  time  for,  209 

Place  of  hearing,  206 

Procedure,  201 

Qualification  of  arbitrators,  202 

Reasons,  assignment  of  in  award, 
207 

Restraint    of   trade,    use    of   for, 
211 

Rules,  adoption  of  re,  210 

Signing  of  award,  208 

Standards,  strengthening  of  com- 
mercial,  196 

Submission,  agreement  of,  203 

Submission,  award  controlled  by, 
207,  208 

Time  of  hearing,  206 

Trade,  attraction  of,  197 

Trade    relations,    betterment    of, 
196 

Voluntary,  198 

Waiver  of  hearing,  205 

Witnesses,  limitation  of,  206 

Witnesses,  swearing  of,  206 
Arbitration,  labor  disputes,  143,  144 
Arbitrators,  201 
Architects,  education  of,  219 
Argument,  right  to  in  arbitration, 

205 
Arkansas  Soft  Pine  Bureau — 

Advertising,  161 

Trademark,  155 
Assembly  of  goods  abroad  by  export 

assn.  not  prohibited,  231 
Assisting  bids,  250 


340 


INDEX 


Assoc.   Adv.    Club   of   World,   cam- 
paign honest  advertising,  167 
Assoc.  Batting  Mfrs.,  credit  bureau, 

180 

Assoc.  Cooperage  Industries — 
Advertising,   157 
Traffic,   177 
Assoc.    Dress    Industries,    overstock 

exchange,  217 

Assoc.  General  Contractors  of  Amer- 
ica— 

Insurance,   190 

Labor  policy,   129,   130,   134,   137 
Trademark,  155 
Assoc.   Leather   Goods   Mfrs.,   labor 

policy,   140 
Assoc.     Tile    Mfrs.,     standards     of 

practice,  85 
Association — 

Action,    need   for    in   labor   prob- 
lems, 127 

Action  re  standardization,  96 
Adopting  cost  systems,  63n 
Adopting  uniform  contracts,  214n 
Adopting  uniform  trading  rules, 

213 

Contact  with  government,  237 
Export — see  Export  Associations 
Export,  number  of,  223 
Lawfulness  of,  242 
Maintaining  foreign  trade  depts., 

221 

Overstock  exchanges,  217 
Research  British,  124n 
Salesmen's  schools,  217 
Subsidiary  cost,  72 
Subsidiary  research,  114 
Subsidiary  traffic,  177 
Assn.  of  Dress  Mfrs.,  style  bureau, 

189 

Assn.  of  Ice  Cream  Supply  Men — 
Advertising,  163 
Credit  Bureau,  180 
Fair  practices  code,  35 
Assn.  of  Mfrs.  Chilled  Car  Wheels, 

standardization  sizes,  86 
Assn.  of  Railway  Executives,  adver- 
tising, 156 

Attempt  to  monopolize — 
Denned,  In 

Intent,  must  be  shown,  7 
Attitude  associations  toward  labor 

128 

Attorney  General's  opinion  re  asso- 
ciation— 

Advertising,  cooperative,  332 
Cost  accounting,  75,  332 
Credit  bureaus,  102,  329,  332 


Attorney  General's  opinion  re  asso- 
ciation   ( Cont. ) 
Facts,  interchange  business,   330, 

332 
Insurance,    cooperative    handling, 

329,  332 
Labor,     welfare,     apprenticeship, 

etc.,  329,  332 

Legislation,  handling  of,  329,  332 
Nomenclature,  standardization  of, 

329,  332 
Prices,   interchange  of,   251,   331, 

332 

Standardization,  329,  332 
Trademark,  cooperative,  332,  333, 

334 

Traffic,  handling  of,  329,  332 
Attorney,    conference    with,    of    one 

party  in  arbitration,  206 
Attorneys,    use    of    in    compilation 

facts,  56 
Attorney,    right   to    in    arbitration, 

205 

Authors'  League  of  America,  adver- 
tising, 156 

Average  prices,  publication  of,  60 
Averages,  cost,  use  in  price  making, 

Award  in  arbitration,  207  ff. 
Award,  must  cover  all  matters  sub- 
mitted, 209 


B 


Banking,  organization  corporation 
for  exclusive  foreign,  per- 
mitted, 234 

Belgium,  research  work,  123 
Benefits — 

Advertising,   148 

Arbitration,  195 

Cost  accounting,  64,  239 

Credit  Bureaus,  178 

Export  Assns.,  224 

Insurance,  189 

Overstock  exchanges,  217 

Research,  124,   125 

Salesmen's  schools,  216 

Standardization,  81,  84,  87,  93,  94 

Uniform  contracts,  214 

Uniform  trading  rules,  213 
Bidding,  agreements  to  refrain  from, 

258 

Bids,  fictitious,  250,  265 
Bookkeeping,  education  of  members 

as  to,  72 
Boycotts,  264,  184 


INDEX 


341 


Breakage,  reduction  of  by  research, 

110 
British       Engineering       Standards 

Assn.,  92 

Bureau     Foreign     Domestic     Com- 
merce, cooperation,  222 
Bureau  of  Markets,   fact  reporting 

system,  57 

Bureau  of  Plant  Industry,  nomen- 
clature standards,  81 
Bureau  of  Standards,  cooperation  in 

research,  111,  117,  118 
Nomenclature,  82 
Quantity  standards,  82 
Buying — 

Agreements  to  refrain  from — 
Cooperative,  257 
Simplification   of   by   standard- 
ization, 93 

By-products,    utilization   of    by   re- 
search, 107 


California      Fruit      Growers'      Ex- 
change, trademark,  155 
California  Olive  Assn.,  advertising, 

158 
Campaign,    advertising,    length    of, 

165 
Capital — 

Export  assns.,  226 

Freeing  of  by  standardization,  94 

Less  need  by  standardization,  89, 

94 

Capper-Volstead    Act,    text,    295 
Cargo     shipments,     ability     export 

assns.  to  handle,  224 
Carload  weights,    172 
Carty's,    John    J.,    attitude    re    re- 
search, 103 
Central    Paper    Box    Mfrs.    Assn., 

credit  bureau,  181 
Chamber   of   Commerce,  N.   Y.,   ar- 
bitration, 211 

Chamber  of  Commerce,  U.  S. — 
Arbitration,  197 

Cost  accounting  program,  63,  64n 
Standardization  work,  86 
Channels  of  distribution,  control  of, 

261 

Claims,  handling  of  traffic,  176 
Classification — 
Ratemaking,  171 
Standards,    81 
Trade,   185,  246 
Clayton  Act — 

Contracts,  exclusive,  9 


Clayton  Act  (Cont.) 

Directorates,  interlocking,  11 
Export  assns.  amended  as  to,  223 
Liability,  personal,  for  violation, 

12 

Price  discriminations,  9 
Purpose  of,  8 

Stock,  acquirement  of  by  cor- 
poration, 10 

Supplements  Sherman  Act,  8 
Test  of  violation,  8,  9 
Text,  279 

Clay  Products  Assn. — 
Advertising,  150 
Quality  Standards,  83 
Clerical  work,  less  by  standardiza- 
tion, 94 
Code     of     ethics — See     Codification 

rules  business 
Codification    of    rules    of    business 

practice — 
Associations      publishing      codes, 

37n 
Code  of  Ice  Cream  Supply  Men, 

35 

Enforcement,  methods  of,  39 
Extent  of  movement  for,  37 
Federal  Trade  Commission,  coop- 
eration of,  40 
Legality  of,  42,  43 
Trade  practice  submittal,  41 
Coercion,  272 

Coffee  Roasters'  Assn.,  research,  116 
Collection  bureaus,  182 
Collective  bargaining,   133,  138 
College    City   of   New   York,    trade 

courses,  136 
Columbia     University,     association 

cost  accounting  work,  71 
Commerce,  Department  of — 
Arbitration,  198 

Correspondence  with  Attorney 
General  re  assn.  activities, 
324 

Foreign  trade,  222 
Nomenclature,  82 
Quantity  standards,  82 
Research,  cooperation  in,  111,  117, 

118 

Research,  equipment  for,  118,  126 
Reporting  system,  58 
Standard  building  code,  85 
Standard  brick  sizes,  86 
Standardization  work,  98,   99 
Uniform  contracts,  216 
Commercial  agencies,  use  of  in  com- 
pilation facts,  56 
Commercial  Standards  Council,  37 


342 


INDEX 


Committees,  arbitration,  202 
Committee  of  American   Shipbuild- 
ers, advertising,  156 
Committee,  traffic,  175 
Common     Brick     Mfrs.     Assn.     of 

America — 

Advertising,  153,  154 
Trademark,  155 

Common   selling  agency,    248,   252 
Compensation  laws,  workmen's,  131 
Competition — 

Ability   of   export   assns.    in   for- 
eign, benefits  of,  225 
Dangers  of  unregulated,  25,  29 
Limitation  of  period  of,  249 
Meeting  of,   as  defense  for  price 

discrimination,  9 
Potential,  as  factor  in  determina- 
tion of  reasonableness,  5 
Price,  6 
Quality,  6 

Research   as   increasing  efficiency 
of   against   competing   indus- 
tries,  125 
Restriction    of,    see    restraint    of 

trade 
Restriction  of  domestic  by  export 

assn.  prohibited,  232,  233 
Service,  6 

Standardization    increases    effect- 
iveness of  industry  in,  91 
Suppression  of  by  standardization, 

101 

Terms,  6 
Wastes  of,  30 

Competitors,  injury  to  as  factor  in 
determination  of   reasonable- 
ness, 4 
Compilation,  business  facts,  methods 

of,  55 

Compulsory  arbitration,  199 
Cooperative    buying    organizations, 

257 

Conditional  arbitration  awards,  20 
Conditions,  working — 

Assn.  Contractors'  code,  131 
Use  advertising  to  secure  better, 

159 
Consolidated  Steel  Corporation,  224, 

227 

Consular    service,    cooperation    for- 
eign trade,  223 
Consumer — see  Public 
Container  Club — 

Machine    performance    standards, 

84 
Research,  109,  112,  116 


Contracts,  arbitration  clause  in,  195, 

197 
Contracts,  exclusive — 

Prohibited,    if   may   substantially 
lessen  competition,  9,  10 

Purpose  of  prohibition,  10 

Text  Clayton  Act  prohibiting,  280 
Contracts,  use  to  enforce  standards, 

101 
Contracts,  uniform — 

Adoption,  method  of,  215 

Associations  adopting,  215 

Benefits  of,  214 

Department    of    Commerce,    atti- 
tude, 216 

Legality,  216 

Need  for,  213 
Control — 

Advertising  campaign,  165 

Channels  of  distribution,  261 

Export  assns.,  227 
Copper  Export  Assn.,  224,  225,  227 
Copyrights,  use  to  restrict  competi- 
tion, 255 
Corner,  255 
Cost  Accounting — 

Accountants,   employment  of,   71, 
73 

Agreement,  fixing  elements  of  cost 
by,  76 

Associations    adopting    cost    sys- 
tems, 63n 

Associations,  subsidiary  cost,  72 

Attorney     General,     opinion     re 
legality,  75,  332 

Averages,  use  of  in  price  making, 
77 

Benefits  of,  64,  239 

Committees,  70 

Compilation    cost   data    for    com- 
parison, 74 

Credit,  aid  in  bettering,  67 

Educational  institutions,  coopera- 
tion of,  71 

Efficiency,   increased  by  compari- 
son costs,  68 

Federal  Trade  Commission,  opin- 
ion re  legality,  74n,  77n 

Fixing  elements  of  cost  by  agree- 
ment, 76 

Flexibility  of  system,  74 

Government  proceedings  involving, 
78 

Government,  value  of  in  relations 
with,  69 

Installation,  methods  of,  70 

Labor,  check  on  inefficient,  66 

Legality,  74 


INDEX 


343 


Cost  Accounting  (Cont. ) 

Machinery,  check  on  inefficient,  66 
Marginal  cost,  as  method  of  price 

fixing,  77 

Materials,  check  on  waste  of,  66 
Meetings    for    consideration    cost 

data,  79 

Price,  aid  in  determining,  64 
Price,  stabilization  of,  65,  70 
Production,  stimulation  of,  67 
Publication,  cost  data,  78 
Quality,  aid  in  improvement,  66 
Recommendations,    association   re 

cost  data,  79 
Suggestions,  73 

Tax  returns,  aid  in  making,  68 
Trade,  aid  in  attracting,  67 
Uniform  costs,  75,  249 
War,  value  in,  69 
Waste,  aid  in  eliminating,  65 
Cost  averages,  use  in  price  making, 

77 

Costs- 
Reduction  distribution,  of  export 

assns.,   224 
Reduction  of  by  standardization, 

88,  89,  94 
Selling,    difference   in    or   defense 

for  price  discrimination,  9 
Transportation,    difference    in    or 
defense  for  price  discrimina- 
tion, 9 

Uniform,  agreement  fixing,  249 
Value  of  facts  in  re,  50 
Cost  Association  of  Paper  Industry, 

72 

Councils,  industrial,  142 
Counsel,  right  to  in  arbitration,  205 
Credit- 
Cost  accounting  as  factor  in  bet- 
tering, 67 
Credit  bureaus — 
Benefits  of,  178 
Legality,  183,  329,  332 
Methods  of,  179 
Opinion  Attorney  General  in  re, 

329,  332 

Suggestions  re  conduct  of,  185 
Use  of  as  whitelist,  268 
Use  of  to  boycott,  265 
Credits,    foreign    ratings    by    assn., 

222 
Credit,    fixing    terms    of    unlawful, 

183 

Curtailment  of  production,  247 
Curtailment  of  supply,  247 
Customers,  allotment  of,  247 
Customers,  right  to  select,  9,  246 


Customs,  trade,  development  by  ar- 
bitration, 196 

Cycle  Trade  of  America,  advertis- 
ing, 163 

Czecho  Slovakia,  research  work,  123 


Dangers  of  standardization,   95 

Dangers  of  unregulated  competi- 
tion— 

To  individual,  25 
To  public,  29 

Deception,  see  Fraud 

Decisions,  arbitration,  more  fair, 
195 

Delivery  quicker  by  standardization, 
90,  94 

Demand — 

Creation  by  advertising,  149 
Enlargement  by  advertising,  149 
Modification  by  advertising,  151 
Value  of  facts  re,  47,  50 

Demurrage,  172 

Department  Justice,  correspondence 
with  Dept,  Commerce  re  asso- 
ciation activities,  324 

Department  of  Trade,  Holland,  123 

Design  registration  bureau,  189 

Destruction  of  supply,  248 

Development  of  arbitration,  193 

Dimensions,  standardization  of,  86, 
93,  96 

Directors,  liability  of,  242n 

Direction  of  research,  121,  115,  11 6n 

Directorates,   interlocking — 
Extent  of  prohibition,  11 
Purpose  of  prohibition,  12 
Text  Clayton  Act  prohibiting,  282 

Discrimination — 

By  packer  unlawful,  309 
Penalty  for  inducing  traffic,  178 

Discussion — 

Labor  problems,  129 
Research  problems,  113 

Disputes — 

Adjustment  of,   Assoc.   Contract- 
ors' labor  code,  133 
Elimination  of  by  arbitration,  196 

Distribution — 

Betterment    by    uniform    trading 

rules,  212 

Control  of  by  advertising,  158 
Control  channels  of,  261 
Demand  for  improvement  in,  212 
Importance  advertising  to,  148 
Increasing  cost  of,  147 


344 


INDEX 


Distributor- 
Benefits  of  standardization  to,  93 
Education  by  advertising,  151 

Division  of  territory,  246 

Douglas  Fir  Exploitation  &  Expor- 
tation Co.,  225,  227 

DuPont  Company,  research,  108 

Dumping — 

Text  act  prohibiting,  306 
Unfair  competition,  18 


E 


Eastman  Kodak  Company,  research, 

104 
Edge  Actr- 

Corporation  for  exclusive  foreign 
banking  business  authorized, 
234 
Powers  of  banks  organized  under, 

235 

Purpose,  234 

Education,  trade,  131,  135 
Educational  institutions — 
Cooperation  in  cost  accounting,  71 
Cooperation  in  research,  112,  115 
Educational  work — 

Architects,  engineers,  etc.,  219 
Consumer,   219 
Retailers,  218 
Efficiency — 

Comparison    of    costs   method    of 

increasing,  68 

Purpose  laws  to  encourage,  21 
Embargoes,  174 
Emergencies,  traffic,   173 
Employment,     Associated     Contrac- 
tors' Code,  130 

Employment,  outside  parties  by  ar- 
bitrators, 207 
Enforcement — 

Arbitration  award,  211 
Standards,  100 
Engineering    Council,    Nat.    Board 

Juris.  Awards,  137 
Engineering  organizations,  coopera- 
tion with  in  standardization, 
97 
England — 

Research  in,  104,  123 
Standardization  work,  92 
Trade  education,   135 
Use  of  arbitration  in,  197 
Espionage,  292 

Equipment,   improvement  of  by  re- 
search, 112 
Evidence — 

Admissible  in  arbitration,  206 


Evidence    ( Cont . ) 

Statement      of      in      arbitration 

award,  207 

Time  allowed  for,  arbitration,  206 
Evils  of—- 
Lack of   standardization,  80,  81, 

84 
Lack    of   uniform   trading   rules, 

Exchanges,  overstock,  217 

Ex  parte  arbitration  hearing,  206 

Export  associations — 

Advantages  of,  224 

Alaska,  cannot  export  to,  231 

Alaska,  may  be  formed  in,  231 

Assembly    of    goods    abroad    not 
prohibited,  231 

Capital  of,  226 

Cargo  shipments,  ability  to  han- 
dle, 224 

Clayton  Act,  amended  as  to,  223 

Competition,     restriction     of    do- 
mestic prohibited,  232,  233 

Competition,  strengthened  in,  with 
foreign  combines,  225 

Control  of,  227 

Control  over  exports,  225 

Costs,  lower  distribution,  224 

Export  trade  defined,  230 

Export    trade,    must    engage    in 
solely,  223,  230 

Federal  Trade  Commission,  filing 
with,  234,  293 

Federal  Trade  Commission,  juris- 
diction over,  234 

Guam,  may  not  be  formed  in,  232 

Hawaii,  cannot  export  to,  231 

Hawaii,  may  be  formed  in,  231 

Importation  prohibited,  232 

Legality  of,  229 

Management  of,   227 

Manufacturer,   small,  benefits  to, 
234 

Manufacturing    abroad    not    pro- 
hibited, 231 

Manufacturing     in     U.     S.     pro- 
hibited, 231 

Membership,  225 

Operation  of,  227 

Organization,  226 

Number  of,  223 

Panama   Canal   Zone,   cannot  ex- 
port to,  231 

Panama  Canal  Zone,  may  not  be 
formed  in,  232 

Philippine  Islands,  cannot  export 
to,  231 


INDEX 


345 


Export  associations    (Cont.) 

Philippines,   may  not  be  formed 
in,  232 

Porto  Rico,  cannot  export  to,  231 

Porto   Rico,   may  be   formed    in, 
231 

Price,  artificial  or  intentional  con- 
trol of,  233 

Price  fixing,  organization  for,  pos- 
sibly unlawful,  230 

Protection  against  foreign  buyers, 
224 

Quality,  uniformity  of,  224 

Restraint  of  trade  by  prohibited, 
223,  232,  233 

Sales  for  domestic  trade  not  per- 
mitted, 231 

Sales  in  U.  S.  for  export  lawful, 
231 

Service,  uniformity  of,  224 

Sherman  law,  amended  as  to,  223, 
229 

Stabilization    domestic    trade   by, 
225 

Statutory  requirements,   233 

Unfair  methods  of  competition  by 
prohibited,  223,  233 

Voting  power  in,  227 

Webb,   Pomerene   law   authorizes, 
223,  229 

Wilson  Tariff  Act,  232 
Expense,  elimination  of  by  arbitra- 
tion, 195 

Expert,  employment  traffic,  175 
Export  trade — 

Defined,  230 

Export  Assns.  limited   solely  to, 

223,  230 
Expulsion   for   failure  to   abide   by 

award,  211 

Extent  of  restraint,  as  factor  in  de- 
termination    of     reasonable- 


F 


Facts,  business — 

Accountants,  use  of  in  compiling, 
56 

Accuracy  of,  61 

Agriculture,  Department  of,  re- 
porting system,  57 

Associations  distributing,  44 

Attorneys,  use  of  in  compiling,  56 

Averages,  60 

Bureau  of  Markets,  reporting  sys- 
tem, 57 


Facts,  business    (Cont.) 

Commerce,  Department  of,  report- 
ing system,  58 

Commercial    agencies,    use    of   in 
compiling,  56 

Comparable  if  goods  standardized, 
90,  93 

Compilation,  methods  of,  55 

Cost,  50 

Data  needed,  45 

Demand,  46,  49,  50 

Federal    Trade    Commission,    re- 
porting system,  57 

Fraud,  prevention  of,  54 

Government,  aid  in  compiling,  57 

Government,  aid  to,  53 

Ignorance  of,  45 

Illegal  use  of,  58 

Individual  figures,  60 

Inventory,  51 

Labor  performance,  50 

Legality     of     dissemination,     58, 
330,  332 

Machine  performance,  50 

Management,  50 

Manufacturer,  small,  benefits,  52 

Materials,  51 

Meetings     for    consideration    of, 
61 

Operation,  50 

Orders  current,  47,  48,  50 

Orders  unfilled,  47,  48,  50 

Prices,  aid  in  making,  50 

Prices,  publication  of,  60 

Price,  stabilization  of,  54,  55 

Production,  45,  48,  49,  50 

Publication  of,  61 

Public    benefits    from    dissemina- 
tion, 52 

Recommendations  concerning,  60 

Shipments  current,  47,  50 

Speculation,  correction  of,  52,  55 

Stabilization  through,  49,  51,  54, 
55,  59 

Stocks  on  hand,  47,  50 

Supply,  46,  49,  50 

Trends,  51 

Value  of,  45,  50,  53 

Wages,  50 

War,  value  in  case  of,  53 

Waste,  51 

Facts  peculiar  to  industry  as  factor 
in    determination    of    reason- 
ableness, 7 
False  statements  designed  to  affect 

price,  150 

Farmers'    Organization — See    Agri- 
cultural Associations 


346 


INDEX 


Federal  Reserve  Board,  cooperation 

foreign  trade,  221,  234 
Federal  Trade  Commission — 

Cooperation  foreign  trade,  221 

Cooperation  with  industries,  40 

Cost  accounting  campaign,  63 

Jurisdiction  over  export  assns., 
234 

Jurisdiction  under  Clayton  Act, 
285 

Jurisdiction  under  Federal  Trade 
Commission  Act,  299 

Limitation  of  jurisdiction  by 
Packers  &  Stockyards  Act, 
320 

Opinion  re  legality  cost  account- 
ing, 74n,  77n 

Powers  of,  text,  299,  303 

Powers  under  Webb  Act,  text,  293 

Work  in  reporting  business  facts, 

57 

Federal  Trade  Commission  Act — 
See  also  unfair  methods,  com- 
petition 

Jurisdiction,  enlargement  of  by 
Webb  Export  Act,  17 

Limitation  of  jurisdiction  by 
Packers  and  Stockyards  Act, 
18 

Purpose  of,  14 

Tests  of  unfairness  of  methods, 
15 

Text,  297 

Unfair    methods    of    competition 

prohibited,   14 
Fictitious  bids,  250 
Fighting  ships,  271 
Financing  of — 

Advertising,   161 

Research,  116n,  117,  121 
Fomenting  strikes  among  employees 

to  restrict  production,  248 
Foreign  combinations,  225 
Foreign  research  associations,  123 
Foreign  trade — See  also  export  as- 
sociations 

Advertising  mediums,  data  in  re, 
222 

Arbitration  in,  198 

Associations  maintaining  depart- 
ments, 222 

Credits,  foreign  ratings  by  assn., 
222 

Department  Commerce,  coopera- 
tion in,  222 

Edge  Act,  234 

Export  associations,  223  ff. 

Functions  of  assn.  bureaus,  222 


Foreign  trade  ( Cont . ) 
Importance  of,  221 
Manufacturer,  small,  need  for  or- 
ganization in,  221 
Packing,  data  in  re,  222 
Patents,  data  in  re,  222 
Salesmen,  regulations  of,  222 
Tariffs,  data  in  re,  222 
Trademarks,  data  in  re,  222 
Foreign  Trade  Advisers,  State  Dept. 

cooperation,   223 

Forest  Products  Laboratory,  re- 
search work  of,  108,  109,  110, 
117,  118 

Formal  arbitration,  199 
Form  of  arbitration  award,  207 
France,  research  in,  104 
Fraud — 

Discouragement  of  by  standardiza- 
tion, 91,  93,  95 
Protection    against    by    research, 

112 
Value  business  facts  in  prevention 

of,  54 

Freight  bills,  auditing  of,   176 
Freight,   saved  by   standardization, 
90 


G 


General  Electric  Co.  research,  104 
Georgia    Florida    Saw    Mill    Assn., 

traffic,  176 
Germany — 

Standardization  in,  87,  93 
Research,  104,  106,  123 
Glass  Container  Assn. — 
Advertising,  150 
Research,  110 

Gompers,    Samuel,    attitude    re   re- 
search, 103 
Good  will- 
Protection  of  by  advertising,  154 
Protection  of  by  research,  112 
Government  Agencies,  misuse  of,  273 
Government — 

Aid  of  in  compiling  facts,  57 
Assn.   relation  with,   opinion  At- 
torney   General    in    re,    329, 
332 

Benefit  dissemination  facts  to,  53 
Cooperation  in  research,  117 
Cooperation  with  in  standardiza- 
tion, 97 

Proceedings     involving    cost    ac- 
counting, 78 

Value  cost  accounting  in  relations 
with,  69 


INDEX 


347 


Government  relations — 

Failure     industries     to     present 

facts,  237 

Forms  assn.  contact  with,  237 
Regulation  of  competition,  239 
Standardization,  239 
Tariff,  239 
Taxation,  239 
Transportation,  239 
Value  organization  in,  239 
Government  standards,   dangers  of, 

99 
Grade,  difference  in  or  defense  for 

price  discrimination,  9 
Grain  Dealers  Nat.  Assn. — 
Arbitration,  195,  202,  211 
Trading  rules,  213 
Granite  Mfrs.  Assn. — 
Advertising,  160,  163 
Labor  policy,  140 
Guam,    export    assn.    formation    in 

not  permitted,  232 
Gypsum    Industry   Assn.,    research, 
112 


Harvard  University,  association  cost 

accounting  work,  71 
Hawaii — 

Export    assn.    cannot    export    to, 

231 

Export    assn.    formation    in    per- 
mitted, 231 

Hearing,  arbitration,  204 
Holding  companies,  10,  244 
Holding  company,  text  Clayton  Act 

prohibiting,  281 
Holland,  research  work,  123 
Hours  of  work,  policy  Assoc.  Con- 
tractors, 131 


Imperial  Trust  Encouragement  Re- 
search, 123 

Importation,  see  Dumping 

Importation  by  export  assn.  not  per- 
mitted, 232 

Incompetency  of  arbitrators,  203 

Independent  Oil  Men's  Association, 
trade  practice  submittal,  42n 

Informal  arbitration,  199 

Initiative,  destruction  of  by  stand- 
ardization, 95 

Inspection — 

Simplified  by  standardization,  89 
Use  to  enforce  standards,  101 


Installation — 

Methods  installation  cost  account- 
ing systems,  70 

Instructions  to  arbitrators,  211 

Insurance,  association  agencies,  189 

Insurance,  cooperative  handling, 
opinion  Attorney  General  in 
re,  329,  332 

Interest  charges,  reduced  by  stand- 
ardization, 89 

Interest,  right  arbitrators  to  award, 
209 

Institute  American  Meat  Packers — 
Advertising,   156 
Educational  work,  218 

Intent — 

Good,  no  defense,  7 
Material     only    where    restraint 
threatened,  7 

Interassociation  arbitration,  193 

International  Apple  Shippers'  Assn., 
arbitration,  200,  201,  204, 
205,  211 

International  arbitration,  198 

International  Assn.  of  Electrotypers, 
joint  council,  142 

International  Assn.  Garment  Mfrs., 
export  bureau,  222 

International  Assn.  Rotary  Clubs, 
campaign  for  codes  of  busi- 
ness practice,  38 

International  Chamber  of  Com- 
merce, arbitration,  198 

International  Chamber  of  Com- 
merce, study  of  unfair  meth- 
ods, 38 

International  Joint  Conference 
Council,  142 

International  Monumental  Granite 
Producers'  Assn.t  labor  policy, 
140 

Interstate  Commerce  Act,  penalty 
for  inducing  discrimination 
under,  178 

Interstate    Cotton    Seed    Crushers' 

Assn. — 
Arbitration,    195,    202,    204,    205, 

211 

Quality  standards,  83 
Research,  108,   115 
Trading  rules,  213 

Intimidation,  272 

Indention,  purpose  laws  to  encour- 
age, 24 

Inventory — 

Reduction  of  by  standardization, 

88,  89,  94 
Value  of  facts  in  re,  51 


348 


INDEX 


Involuntary  restraint — 

Denned,  5 

Irregular  sales,  coercion  or  persua- 
sion to  prevent,  262 


Japan,  research  in,  104 

Joint  Coffee  Trade  Publicity  Comm., 

advertising,  158 
Jurisdictional  strikes,  settlement  of, 

137 
Jurisdiction — see  Powers 


Knit  Goods  Mfrs.  of  America — 
Advertising,  152 
Collections,  182 
Educational  work,  219 
Uniform  contracts,  215 


Labor — 

Accident  prevention,   134 
Agreements,  association  with,  140 
American    Construction    Council, 

145 

Association,  right  of  labor,  132 
Attitude  of   associations   toward, 

128 
Attorney    General,    opinion,    329, 

332 

Collective  bargaining,  138 
Conditions,  working,   131 
Cost  accounting,  as  check  on,  66 
Cost  of  living  study,  138 
Councils,  industrial,  142 
Discussion  at  meetings,  129 
Disputes,  adjustment  of,  133 
Education,  trade,  135 
Employment,  130 
England,  trade  education,  135 
International     Joint     Conference 

Council,   142 
Jurisdictional   strikes,   settlement 

of,  137 
National       Board       Jurisdiction 

Awards,  137 
National    Founders    Assn.,    labor 

policy,   129 

Need  for  association  action,  127 
Organizations,  exemption  of,  text 

Clayton  Act,  281 
Performance,  value  of  facts  in  re, 

50 


Labor    (Cont.) 

Principles,  formulation  of,  130 

Production,  132 

Public,  benefits  from  association 
action  in,  146 

Purpose  of  laws  to  protect,  25 

Research  re,  111' 

Statute  Employment  Relations, 
130 

Steadier  employment  by  standard- 
ization, 88,  95 

Strikes,  settlement  of,  137 

Supply  of,  138 

Supply,  use  advertising  to  secure, 
159 

Unemployment,  137 

Union,  agreement  with  to  secure 
preference  for  members  assn., 
269 

Unions,  exception  anti-trust  laws 
as  to,  13 

United  Typothetse  plan,  127,  135, 
136,  138,  141 

Wage  trends,  study,  138 
Laboratory — 

Association,  119 

Commercial,    employment   for   re- 
search, 115 
Laundry  Owners  National  Assn. — 

Cost  accounting,  72 

Research,   108,   112,   116 
Leather  Belting  Exchange,  research, 

116 
Leases  based  on  exclusive  dealing, 

9 

Legality — See     also     restraint     of 
trade;  attorney  general 

Arbitration,  211 

Codes  of  business  conduct,  42 

Cooperative  advertising,  166,  332 

Cost  accounting,  74 

Credit  bureaus,  183 

Dissemination  business  facts  by 
associations,  58 

Export  assns.,  229 

Labor  problems,  consideration  of, 
146 

Research,  126 

Salesmen's  Schools,  217 

Standardization,  101 

Trademark  bureau,  189 

Traffic  work,  178 

Uniform  contracts,  216 

Uniform  trading  rules,  213 
Legislation — 

Combatting  by  advertising,  156 

Cooperative  handling,  opinion  At- 
torney General  in  re,  329,  332 


INDEX 


349 


Legislation    ( Cont. ) 
Fixing  Standards,  99 
Unfair  procurement  of,  273 
Lewis  Institute,  research,  115 
Liability,    of   officers,    directors    for 

violation  anti-trust  acts,   12, 

287 
Library,  importance  of  in  research, 

106,  121 

Linseed  Assn.,  arbitration,  201 
Literature,    technical,    improvement 

by   standardization,   91 
Litigation,   malicious,   271 
Logan    Mines    Information    Bureau, 

advertising,   159 


M 


Machine  performance,  value  of  facts 

in  re,  50 
Machinery — 

Cost  accounting  as  check  on  inef- 
ficient, 66 
Management  export  assns.,  227 

Value  of  facts  re,  50 
Manufacturer — 

Dissemination    facts,    benefits    to 

small,  52 
Export    assn.,    benefits   to    small, 

234 
Organization,  need  for  in  foreign 

trade  to  small,  221 
Research,  benefits  to  small,  126 
Standardization,    benefits    to,    88, 

96 
Manufacturing    abroad    by    export 

assn.  not  prohibited,  231 
Manufacturing  in   U.   S.   by  export 

assn.  not  permitted,  231 
Materials — 

Cost     accounting     as     check     on 

waste,  66 

Market    stabilizing   by    standard- 
ization, 88,  89 
Value  of  facts  in  re,  51 
Waste  checked  by  standardization 

94 

Magnesia    Assn.     of    America,    re- 
search, 109,  116 
Marginal  cost,  as  method  of  price 

fixing,  77 
Mass.  Institute  of  Technology,  assn. 

research,  112,  113,  116 
Means  employed,   if  illegal  purpose 

or  result  shown,  243 
Meetings — 

Association     consideration     facts 
compiled,  61 


Meetings  (Cont.) 

Consideration  cost  data,  79 

Discussions  of  labor  problems,  129 

Need  for  in  research,  121 
Mellon  Institute,  research,  108,  109, 

116 
Member — 

Liability  of  assn.,  242n 

Research  work  for,  121,  125 
Membership  export  assns.,  225 
Merger,  245 

Methods— See   also   Procedure;    Or- 
ganization 

Advertising,  164 

Association  traffic,  175 

Conducting    arbitration    hearing, 
205 

Credit  bureaus,  179 

Employed,  as  factor  in  determina- 
tion or  reasonableness,  6 

Improvement  of  by  research,  112 

Research,  113  ff. 
Metal  Ware  Mfrs.  Assn.,  research, 

111 

Millers'  Exchange,  indemnity  insur- 
ance, 181 

Missing  property  bureau,  191 
Mistake,  effect  of  on  award,  207 
Mixing  privilege,  172 
Monopoly — See    also    Restraint    of 
trade 

Acquired  by  efficiency,  In 

Definition  of,  3,  In 

Purpose  to  protect  against,  27 

Prohibited,  256,  In 
Motor  Trade  Assn.,  advertising,  158 


N 


National  Assn.  Manufacturing 
Photo-Engravers,  agreement 
with  union  re  cost  systems, 
66n 

National  Assn.  Retail  Grocers,  edu- 
cational work,  218 

National  Assn.  Sand  &  Gravel  Pro- 
ducers, traffic,  175 

National  Assn.  Sheet  Metal  Con- 
tracts, labor  discussion,  129 

National        Automobile        Chamber 

Commerce — 

Government  relations,  240 
Patents,  186 
Standardization  of  dimensions,  87 

National  Board  Jurisdictional 
Awards,  137 

National  Boot  &  Shoe  Assn.,  credit 
bureau,  181 


350 


INDEX 


National    Canners'   Assn.,    advertis- 
ing, 158 
Research,  111 

National  Coal  Assn.,  government  re- 
lations, 240 
National  Coffee  Roasters'  Assn.,  cost 

accounting,  71 
National  Dairy  Council — 
Advertising,   153 
Educational  work,  220 
National    Dairy   Products    Commit- 
tee, 240 
National    Elec.   Contractors'    Assn., 

labor  discussions,  130 
National      Erectors      Assn.,      labor 

policy,   129 

National  Alliance  Employers  &  Em- 
ployees, 135 

National   Apprentice   Council,    Can- 
ada, 136 
National  Assn.  Box  Mfrs.,  research, 

109 
National  Assn.  Builders'  Exchanges, 

labor  discussions,  130 
National  Assn.  Credit  Men,  Canons 

of  Ethics,  37 

National  Assn.    Clothiers,   advertis- 
ing, 157 

National  Assn.  Cost  Accountants,  73 
National  Assn.  Cotton  Mfrs.,  labor 

discussions,  130 
National  Assn.  Greeting  Card  Mfrs., 

advertising,  161,  162 
National    Assn.     Farm    Implement 

Mfrs.,  insurance,  191 
National  Assn.  Lumber  Mfrs. — 
Advertising,   153,   156,   158 
Educational  work,  218,  220 
Facts,  interchange  business,  51 
Government  relations,  240 
Uniform  contracts,  215 
National  Assn.  Mfrs. — 
Accident  prevention,    134 
Foreign  trade  bureau,  222 
Government '  relations,  240 
Labor  policy,   129 

National  Brick  Mfrs.  Assn.,  stand- 
ardization sizes,  85 
National    Fed.   of   Construction   In- 
dustries— 

Standardization  building  codes,  85 
Trade  education,   136 
National   Fertilizer  Assn. — 
Educational  work,  219 
Insurance,   191 
School  for  salesmen,  216 
National     Foreign     Trade     Council, 
support  Webb  Act,  223 


National     Founders'     Assn.,     labor 

policy,  129 
National     Garment     Mfrs.'     Assn., 

overstock  exchange,  217 
National  Hardware  Assn.,  overstock 

exchange,  217 
National   Hardwood   Lumber  Assn., 

inspection  system,  101 
National  Industrial  Traffic  League, 

177 
National  Jewelers'  Board  of  Trade, 

Vigilance  Committee,  191 
National   League    Commission   Mer- 
chants, arbitration,  202,  211 
National  Metal  Trades  Assn. — 
Labor  policy,   129 
Trade  education,  135 
National  Paving  Brick  Mfrs.'  Assn., 

advertising,  153 
National     Paint,     Oil     &     Varnish 

Assn. — 
Insurance,  189 
Trademark  bureau,  188 
National  Paper  Box  Mfrs.  Assn. — 
Labor  discussions,  130 
Overstock  exchange,  217 
National  Periodical  Assn.,  advertis- 
ing, 157 

National  Research  Council,  coopera- 
tion in  research  work,  106, 119 
Research  work,  106,  115,  122 
National    Retail    Lumber    Dealers' 
Assn.,  uniform  contracts,  216 
National  Safety  Council,  134 
National  Shoe  Retailers'  Assn.,  cost 

accounting,  71 

National  Warm  Air  Heating  &  Ven- 
tilating Assn. — 
Advertising,   154,  162 
Collections,   182 
Cost  accounting,  71 
Credit  bureau,  181 
Research,    116 
Trademark,  155 
National       Wholesale       Druggists' 

Assn. — 

Cost  accounting,  71 
Credit,   182 
National      Wholesale     Dry     Goods 

Assn. — 

Advertising,  157,  162 
Uniform  contracts,  215 
National  Wholesale  Grocers'  Assn. — 
Arbitration,  202,  204 
Cost  accounting,  68,  71 
Educational  work,  218,  220 
Research,  109 
Traffic,  172,  175 


INDEX 


351 


National  Wholesale  Lumber  Dealers' 

Assn. — 

Credit  bureau,  180 
Collections,   182 
Uniform  contracts,  215 
Nature    of    restraint,    as    factor    in 
determination  of   reasonable- 
ness, 5 

Needle  Trade  Assn.,  advertising,  159 
Nomenclature — 

Standardization  of,  81 
Standardization    of,    opinion    At- 
torney   General    in    re,    329, 
332 

North  Carolina  Pine  Assn. — 
Advertising,  153 
Traffic,  177 
Notice  of  arbitration  hearing,  206 


Oak  Flooring  Mfrs.  Assn.,  advertis- 
ing, 152,  163 
Obsolete  goods,  less  if  standardized, 

90,  94 

Officers,   liability  of,   242n 
^Open    price    associations,    59,    251, 

331,  332 

Operation  export  assns.,  227 
Operation,  value  of  facts  re,  50 
Opinion    of    Attorney    General — see 

Attorney  General 

Opportunity,  purpose  to  preserve,  23 
Orders — 

Transfer   of   to   prevent   competi- 
tion, 250 

Value  of  facts  re,  48,  50 
Organization — 

Advertising  campaign,  165 

Arbitration  system,    198 

Cost  accounting  program,  73 

Credit  bureau,  184 

Export  assns.,  226 

Facts,    bureau    for    exchange    of, 

57 

Foreign  trade,  need  for  in,  221 
Research  program,   120 
Standardization  program,  96 
Statistics,  bureau  for  exchange  of 

44 

Traffic  bureau,  176 
Value  of  in  government  relations, 

239 
Overstock  exchanges 

Associations  maintaining,  217 
Benefits  of,  217 


Pacific  Coast  Shippers  Assn. — 
Arbitration,  200 
Traffic,  176 
Packers  and  Stockyards  Act  of  1921, 

18,  308 
Packing — 

Export,  data  by  assn.,  222 
Improvement  of  by  research,  110 
Requirements  by  carriers,  172 
Paint  Mfrs.  Assn. — 

Advertising,  159,  162,  165 

Fight  against  secret  commissions, 

40 

Insurance,  189 
Paint  Trade  Mutual  Fire  Insurance 

Co.,  189 

Panama  Canal  Act,  text,  323 
Panama  Canal  Zone — 

Export    assn.    cannot    export    to, 

231 
Export    assn.    formation    in    not 

permitted,  232 
Pan    American    Congress,    study   of 

unfair  methods,  38 
Papers,  as  research  method,  113 
Patents — 

Covering  research  discoveries,  124 
Gross  licensing  under,  186 
Foreign  data  by  assn.,  222 
Use  to  restrict  competition,  253 
Payment,  of  arbitration  award,  time 

for,  209 

Penalties,  traffic,  172 
Performance,  standardization  of,  84 
Period    of    restraint,    as    factor    in 
determination   of   reasonable- 
ness, 3 
Personnel— 

Advertising  effect  on,   159,   160 
Standardization,     increased     effi- 
ciency by,  91 
Research,  111 

Personnel  Research  Federation,  111 
Philippine  Islands — 

Export,  assn.  cannot  export  to,  231 
Export    assn.    formation    in    not 

permitted,  232 

Place,  of  arbitration  hearing,  206 
Pools,  250 

Portland  Cement  Assn. — 
Advertising,  149,  150,  153 
Educational  work,  220 
Government  relations,  240 
Research,  115 

Standards   of   practice,    adoption, 
85 


352 


INDEX 


Potential   competition   as   factor  in 
determination   of    reasonable- 
ness, 5 
Porto  Rico — 

Export  assn.  cannot  export  to,  231 
Export    assn.    formation    in    per- 
mitted, 231 

Powers,    see    Jurisdiction;    Federal 
Trade  Commission;  Secretary 
of  Agriculture 
Powers,  banks  organized  under  Edge 

Act,  234 

Practice,  standardization  of,  84 
Pratt  Institute,  trade  courses,   136 
Preference,  by  packer  unlawful,  309 
Prejudice,   use  advertising  to   over- 
come, 152,  158 

Prepared  Roofing  Assn.,  credit  bu- 
reau, 180 
Price — 

Agreements  affecting,  249 
Artificial    or    intentional    control 
of  domestic,  by  export  assns. 
prohibited,  233 

Assn.    solely    for    fixing    foreign 
prices  unlawful,  possibly,  230 
Averages,  publication  of,  60 
Competition,   restrictions  on,   248 
Control    or    manipulation    of    by 

packers  unlawful,  310 
Cost  accounting  aid  in  stabiliza- 
tion, 65,  70 

Cost  as  factor  in  determining,  64 
Discriminations — 

cost  of  selling,  difference  in,  as 

defense,  9 

cost    of    transportation,    differ- 
ence in,  as  defense,  9 
grade,  difference  in,  as  defense, 

9 

meeting  of  competition,  as  de- 
fense, 9 

prohibited,  if  substantially  les- 
sen competition,  9 
procurement  of  by  assn.,  270 
purpose  of  prohibition,  9 
quality,    difference    in,    as    de- 
fense, 9 

quantity,   difference   in,   as   de- 
fense, 9 

right  to  select  customers,  as  de- 
fense, 9 
text    Clayton    Act    prohibiting, 

279 

Effect  of  standardization  on,  96 
False  statements  designed  to  af- 
fect, 250 
Fixing,  by  agreement,  248 


Price   (Cont.) 

Purpose  to  prevent  enhancement, 

26 

Undue    enhancement   of   by   agri- 
cultural assn.,  295 
Prices — 
Effect  dissemination  business  facts 

on,  50,  54,  55 
Interchange  of,  opinion  Attorney 

General  in  re,  331,  332 
Publication  of,  60 
Principles,   formulation  labor,    130 
Printers'  League  of  America,  joint 

council,  142 
Priorities,  174 
Priority  orders,  use  to  create  local 

shortages,  248 
Private  cars,  173 
Privy   Council    Scientific   Industrial 

Research,  124 

Problems,  research,  selection  of,  121 
Procedure — see  also  Organization 
Arbitration,  201 
Credit  bureau,  179 
Federal  Trade   Commission,   299 
Standards,  in  adopting,  96 
Uniform,  contracts,  215 
Process,  improvement  of  by  research, 

108 

Producers'    associations — see    Agri- 
cultural associations 
Purpose  to  protect,  24 
Production — 

Assn.  Contractors'  labor  code,  132 
Cost     accounting     as     factor     in 

stimulation,   67 
Curtailment  of,  247 
Increase  in  by  standardization  ad- 
vance of  demand,   88,   93,  95 
Restriction  of  by  labor,  132 
Value  of  facts  re,  47,  48,  49,  53 
Productive  capacity,  value  of  facts 

re,  45,  53 
Profits,    agreements    fixing    margin 

of,  249 

Properties,  determination  of  by  re- 
search, 109 
Protection — 

Against  competing  industry  by  ad- 
vertising, 153 
Against  foreign  buyers  by  export 

assns.,   224 
Public — 

Advertising  medium  contact  with, 

155 
Benefits     association     action     in 

labor  problems,   146 
Benefits  cost  accounting,  64,  239 


INDEX 


353 


Public    (Cont.) 

Benefits     dissemination     business 
facts,  52 

Benefits  research,  126 

Benefits  standardization,  94 

Education  of,  157,  219 

Injury  as  factor  in  determination 
reasonableness,  4 

Rights  of  in  industrial  disputes, 

133 
Publication — 

Business  facts  compiled  by  asso- 
ciation, 61 

Cost  data,  78 
Publicity — 

Advertising  plans,  165 

Research  work,  121 
Purpose  of  anti-trust  laws,  Chap.  II 

Dangers   of  unregulated  competi- 
tion to  public,  29 

Encouragement  of  invention,  24 

Evils  unregulated  competition,  25 

Preservation    individual   opportu- 
nity, 23 

Protection  against  depreciation  in 
quality,  27 

Protection  against  depreciation  in 
service,  127 

Protection  of  efficient,  21 

Protection    against    enhancement 
in  price,  26 

Protection  of  labor,  25 

Protection  against  monopoly  and 
socialism,  27 

Protection  of  producers'  raw  ma- 
terial, 24 

Purpose,  Edge  Act,  234 
Purpose  research,  107  ff. 


Qualifications,  arbitrators,  202 
Quality — 

Competition  restraints  on,  160 
Cost  accounting  as  factor  in  im- 
provement,  66 
Defense  for  price  discrimination, 

9 
Improvement    of    by    advertislfc£, 

research,  111 

standardization,  90,  94,  95,  99 
Purpose  laws  to  prevent  deprecia- 
tion in,  27 

Restraints  on  competition  in,  160 
Standardization  of,  83 
Uniformity  of  export  assns.,  224 


Quantity — 

As  defense  for  price  discrimina- 
tion, 9 
Standardization  of,  82 


Rate  making,  lack  of  unity,  168 
Rates — 

Competitive,     discrimination     in, 
170 

Dangers  in  readjustment,  169 

Effects  on  business,  169 

Export,  171 

Import,  171 

Raw  materials,  171 
Reasonableness  of  restraint,  2 
Reasons,  assignment  of  in  arbitra- 
tion award,  207 
Rebates,  based  on  exclusive  dealing, 

9 
Recommendations — 

Association  re  cost  data,  79 

Business  facts,  60 
Refractories  Accountants'  Institute, 

72 
Refractories  Mfrs.'  Assn. — 

Insurance,  190 

Labor  discussions,  130 

Research,  116 
Refrigeration — 

Improvement  in  by  research,  110 

Need  for  assn.  action  re,  172 
Regulation — 

Advertising  by  associations,  167 

Competition,  need  organized  con- 
tact with  govt.,  239 
Rejections,  protection  against,  192 
Repairs,  simplification  of  by  stand- 
ardization, 94 

Resale  prices,  agreement  to  main- 
tain, 250 
Research — 

Adulteration,  detection  of,  113 

Alloys  Research  Assn.,  106,  115 

Am.  Tel.  &  Tel.  Co.,  104 

Associations,  British,  124n 

Association,  need  for,  105,  124 

^gsociations,  subsidiary  research, 
114 

Belgium,  123 

Benefits  association,  124,  125 

Breakage,  reduction  of  in  trans- 
portation, 110 

Bureau  of  Standards,  cooperation 
in,  117,  118,  111 

By-products,  utilization  of,  107 


INDEX 


Research    (Cont.) 

Carty,  John  J.,  attitude  re,  103 

Competition,  increased  efficiency 
in  against  competitive  indus- 
tries, 125 

Czecho  Slovakia,  123 

Department  of  Commerce,  coop- 
eration in,  117,  118 

Department  of  Commerce,  equip- 
ment for,  126 

Direction  of  work,  115,  116n,  121 

Discussion  at  meetings,  113 

Eastman  Kodak  Co.,  104 

Educational  institutions,  coop- 
eration with,  112,  115 

England,  104,   106,  123 

Equipment,   improvement  of,   112 

Field  for  cooperative,  106 

Financing  of,  116,  117,  121 

Forest  Products  Laboratory,  work 
of,  118 

Foreign  research  associations,  123 

France,  104 

Fraud,  protection   against,   112 

General  Electric  Company,  104 

Germany,   104 

Gompers,  Samuel,  attitude  re,  103 

Good  will,  protection  of,  113 

Government,  cooperation  with, 
117 

Holland,  123 

Imperial  Trust  Encouragement 
Research,  123 

Importance  of,  104 

Japan,  104 

Labor,  111 

Laboratory,   association,    119 

Laboratories,  commercial,  employ- 
ment of,  115 

Legality,   126 

Library,  necessity  for,  106,  121 

Manufacturer,  small,  benefits  to, 
126 

Meetings  need  for,  121 

Members,  work  for,  121,  125 

Methods  of,   113 

Methods,   improvement  by,    112 

National  Research  Council,  106, 
122 

Packing,  improvement  in,  110 

Papers  on,   113 

Patents  covering  discoveries,   124 

Personnel,   111 

Problems   for,   121 

Process,  improvement  of,   108 

Properties,  determination  of,  109 

Public,  benefits  of,  126 

Publicity,  benefit  of,  121 


Research    (Cont.) 

Purposes  of,  107 

Quality,  improvement  of,   111 

Refrigeration,  improvement  in 
110 

Safeguards  against  failure,  120 

Space,  conservation  of  in  cars. 
110 

Standardization,  aid  in,  110,  112 

Substitutes,  discovery  of,  113 

Survey  of  field  of,  121 

Sweden,  123 

Transportation,  reduction  waste 
of,  109 

Turnover,  labor,  111 

Unemployment,  111 

Union  regulations,  effect  of,  111 

Uses,  development  of  new,   112? 

Use,  improvement  methods  of,  112 

Vail.  Theodore  N.,  attitude  re, 
106 

War,  savings  through  during,  110 

Waste,  elimination  of,  107 

Western  Electric  Company,  105 
Research  Institute,  Belgium,  123 
Restraint  of  trade — 

Agreements,  affecting  price,  249 

Agreements  to  confine  purchases 
or  sales  to  members  of  assn., 
262 

Agreements  for  discriminatory 
prices  for  assn.  members,  270 

Agreements  dividing  territory, 
246,  258 

Agreements  for  exclusive  dealing, 
264 

Agreements  with  employees  to  re- 
strict production,  248 

Agreement  fixing  margin  of  profit, 
249 

Agreements  fixing  price,  248 

Agreements  fixing  uniform  cost, 
249 

Agreement  with  labor  union  to 
discriminate  in  favor  assn. 
members,  269 

Agreement  to  maintain  resale 
prices,  250 

Agreements  to  refrain  from  bid- 
ding, 258 

Agreements  to  refrain  from  giv- 
ing service,  260 

Agreements  to  refrain  from  sell- 
ing, 247 

Agreement  to  refrain  from  sell- 
ing decidedly  below  prevail- 
ing prices,  249 

Agreement  trust,  244 


INDEX 


355 


Restraint  of  Trade    (Cont.) 

Allotment  of   customers,   247 

Assisting  bids,  250 

Attorney  General,  opinion  re  open 
price  assn.,  251 

Bidding,  agreements  to  refrain 
from,  258 

Blacklists,  265 

Boycotts,  264 

Buying,  of,  5 

Buying,  cooperative,  257 

Channels  of  distribution,  control 
of,  261 

Classification  of  trade,  246 

Coercion,  272 

Competition, 

limitation  of  period  of,  249 
lower  grade  materials,  effect  of, 

3 
substitute  materials,  effect  of,  3 

Common  selling  agency,  248,  252 

Cooperative  buying  organizations, 
257 

Copyrights,  use  to  restrict  com- 
petition, 255 

Corner,  255 

Costs  uniform,  agreement  fixing, 
249 

Credit  bureaus,  use  of  to  boycott, 
265 

Credit  bureaus,  use  of  as  white- 
lists,  268 

Curtailment  of  production,  247 

Curtailment  of  supply,  247 

Customers,  allotment  of,  247 

Destruction  of  supply,  248 

Direct,  5 

Distribution,  control  channels  of, 
261 

Effect  on  competitors,  4 

Effect  on  public,  4 

Efficiency,  acquired  by,  6 

Espionage,  272 

Export  assns.  prohibited  by,  223 
232,  233 

Extent  of  restraint,  3 

Facts  peculiar  to  industry,  effect 
of,  7 

False  statements  designed  to  af- 
fect price,  250 

Fictitious  bids  or  sales,  250 

Fighting  ships,  271 

Fomenting  strikes  among  em- 
ployees to  restrict  production, 
248 

Government  agencies,  misuse  of, 
273 

Holding  company,  245 


Restraint  of  Trade  (Cont.) 

Importation  prohibited  in,  text, 
321 

Indirect  or  incidental,  5 

Intent  to  accomplish,  effect  of,  7 

Intimidation,  272 

Involuntary,  5,  261 

Irregular  sales,  coercion  or  per- 
suasion to  prevent,  262 

Labor  union,  agreements  with  to 
secure  preference  for  mem- 
bers assn.,  269 

Legislation,  unfair  procurement 
of,  273 

Litigation,  malicious,  271 

Merger,  245 

Methods  employed,  6 

Monopoly,  256 

Nature  of  restraint,  5 

Open  price  associations,  251 

Orders,  transfer  of  to  prevent 
competition,  250 

Patents,  use  to  restrict  competi- 
tion, 253 

Period  of  restraint,  3 

Pools,  250 

Potential  competition,  5,  8 

Price,  6 

Price,  agreements  affecting,  249 

Price  competition,  restrictions  on, 
248 

Price,  false  statements  designed 
to  affect,  250 

Price  discriminations,  270 

Price  fixing  by  agreement,  248 

Priority  orders,  use  to  create  local 
shortages,  248 

Production,   curtailment  of,   247 

Profits,  agreement  fixing  margin, 
249 

Quality,  6 

Quality,  restraints  on  competition 
in,  260 

Quasi-public  employment,  8 

Raw  materials,  uncontrolled  ef- 
fect of,  8 

Resale  prices,  agreement  to  main- 
tain, 250 

Restraints  prohibited,  1  ff,  Chap. 
XVI 

Selection  of  customers,  individual 
right  to,  246 

Selling,  of,  5 

Service,  6 

Service,  restraints  on  competition 
in,  260 

Storage,  interference  with  pro- 
curement of  facilities,  270 


356 


INDEX 


Restraint  of  Trade  (Cont.) 
Straw  bids,  250 
Supply,   cutting   off   competitors' 

material,  268 

Supply,  curtailment  of,  247 
Supply,    interference    with    com- 
petitors' labor,  269 
Terms,  6 
Terms,  restraints  on  competition 

in,  258 

Territorial  extent  of  restraint,  3 
Territory,  division  of,  246 
Test  of  unreasonableness,  2 
Transfer    of    orders    to    prevent 

competition,  250 
Trusts,  244 

Unfair  methods,  acquired  by,  6 
Use,  arbitration  system  for,  211 
Volume  of  trade  restrained,  3 
Voluntary,  5,  244 
Washed  sales,  250 
Whitelists,  267 

Restriction  of  production — see  Pro- 
duction. 

Results — see  Benefits 
Retailers,  education  of,  219 
Rice  Millers  of  America,  advertis- 
ing, 163 

Royal    Swedish    Academy   of   Engi- 
neering Science,  123 
Rubber  Assn.  of  America — 

Arbitration,    202,    204,    205,    210, 

211 

Trading  rules,  213 
Rules- 
Adoption  of  arbitration,  210 
Uniform  trading,  212 


S 


Safeguards,   against  failure  in    re- 
search, 120 
Sales,  fictitious,  250 
Sales  in  U.  S.  by  export  assn.  for 
domestic  trade  not  permitted, 
231 

Sales  methods,  education  by  adver- 
tising as  to  better,  152 
Salesmanship — 
Associations  maintaining,  217 
Benefits  of,  216 
Legality  of,  217 
School  of,  216 
Salesmen,   foreign   regulation,   data 

by  assn.,  222 

Sanitary  Potters'  Assn.,  dimensional 
standardization,  87 


Secretary  of  Agriculture — 
Powers      under     Capper-Volstead 

Act,  text,  295 

Powers    under    Packer    &    Stock- 
yards Act,  310 
Selling,  cost  of  as  defense  for  price 

discrimination,  9 
Service — 

Purpose    laws    to   prevent   depre- 
ciation in,  27 

Restraint  on  competition  in,  260 
Selling  value  of,  by  advertising, 

157 

Standardization  of  betters,  94 
Uniformity  of,  export  assns.,  224 
Selection  customers — 
Individual  right  to,  246 
Defense  for  price  discrimination, 

9 
Sherman  Anti-Trust  Act.     See  also 

restraint  of  trade 
Appropriations,  limitation  on  use 
of    for    prosecution    farmers' 
assns.,  13 

Assns.  solely  in  export  trade  per- 
mitted, 12,  223,  229 
Attempt   to  monopolize,  meaning 

of,  In 

Clayton  Act,  Sec.  6,  13 
Collective     activities     prohibited, 

Chap.  XVI 

Exceptions,  12  ff,  223,  229 
Extent  of  restraint,  3 
Facts  peculiar  to  industry,  7 
Farmers'  assns.  legalized,  13,  14 
Labor  assns.  legalized,  13 
Prohibitions  of,  1  ff 
Purpose  of,  Chap.  II,  21 
Restraint  of  trade,  1  ff.  244  ff 
Tests  of  unreasonableness,  1  ff,  IS 
Text,  276 
Silk  Assn.  of  America — 

Arbitration,    202,    204,    205,    210, 

211 

Government  relations,   240 
Insurance,  189 

Misbranding,  fight  against,  40 
Missing  property  bureau,  191 
Quality  standards,  83 
Trademark  bureau,  188 
Signing  arbitration  award,  208 
Sizes,  standardization  of,  85 
Slogans,  advertising,    174 
Socialism,  purpose  anti-trust  acts  to 

protect  against,  27 
Society   of   American   Florists,   no- 
menclature, 81 


INDEX 


357 


Society  of  Automotive  Engineers — 

Estimated  savings  by  standardiza- 
tion, 87 

Nomenclature  standards,  82 

Standardization  work,  97 
Southern  Cypress  Mfrs/  Assn. — 

Advertising,  153,  154 

Trademark,  155 
Southern    Hardwood    Traffic    Assn., 

177 
Southern  Pine  Assn. — 

Accident  prevention,  134 

Advertising,  153 

Arbitration,  200 

Cost  accounting,  68,  69,  71 

Educational  work,  219 

Government  relations,  240 

Inspection  system,   101 

Insurance,  190 

Quality  standards,  83 

School  for  salesmen,  217 

Trademark,  155 

Traffic,  177 
Stabilization — 

Dissemination   business   fact,   by, 
49,  51,  54,  55,  59 

Domestic  trade  by  export   assn., 
225 

Standardization,  by,  90 
Standardization — 

Association  action  re,  96 

Attorney  General,  opinion  in  re, 
102,  329,  332 

Aid  of  research  in,  110,  112 

Benefits  of,  81,  84,  87,  93,  94 

Buyer,  benefits  to,  93 

Buying,  simplification  of,  93 

Capital,  freeing  of,  94 

Capital,  less  needed,  89,  94 

Classification  of,  81 

Clerical  work,  less,  94 

Competition,  more  effective,  91 

Competition,    suppression    of    by, 
101 

Contracts,  use  of  to  enforce,  101 

Costs,  reduction  of,  88,  89,  94 

Dangers  of,  95 

Deception,  discouragement  of,  91 

Delivery,  quicker,  90,  94 

Dimensions,  86,  93,  96 

Distributor,  benefits  to,  93 

Enforcement,  means  of,  100 

Engineering    organizations,    coop- 
eration with,  97 

England,  standardization  work,  92 

Evils  of  lack  of,  80,  81,  84 

Foreign  trade,  advantage  in,  91, 
95 


Standardization    ( Cont . ) 

Fraud,  discouragement  of,  91,  93, 

95 

Freight,  savings  in,  90 
Germany,    standardization    work, 

93 

Government,  cooperation  with,  97 
Government,    regulation,    danger 

of,  99 

Initiative,  destruction  of,  95 
Inspections    systems    to    enforce, 

101 

Inspection,  simplified,  89 
Interest  charges,  reduction  of,  89 
Inventory,  reduction  of,  88,  89,  94 
Labor,   steadier   employment,    88, 

95 

Legality  of,  101 
Legislation,  99 
Literature,  technical,  development 

of,  91 

Manufacturer,  benefits  to,  88 
Manufacturer,  small,  effect  on,  96 
Materials,  checks  waste  of,  94 
Material    market,    stabilizing    of. 

88,  89 
Need    organization    contact    with 

govt.,  239 
Nomenclature,  81 
Obsolete  goods,  less  of,  90,  94 
Performance,  84 

Personnel,  increased  efficiency,  91 
Price,  effect  on,  96 
Practice,  84 
Procedure,  96 
Production,   advance   of  demand, 

88,  95 

Production,  increase  in,  88,  93 
Public,  benefits  to,  94 
Quality,  83 
Quality,  improvement  of,  90,  94, 

95,  99 

Quantity,  82 
Repairs,  simplified,  94 
Service,  bettered,  94 
Sizes,  85 

Stabilization  of  market,  90 
Stock,  less  required,  94 
Stoppage,  avoidance  of,  88 
Storage,  lessen,  89,  94 
Technical    organization,    coopera- 
tion with,  97 
Trade  relations,  improvement  of, 

91 

Types,  85 

Value  for  comparison,  90,  93 
Varieties,  85 
War,  value  in,  95 


358 


INDEX 


Standards,    strengthening    business, 

by  arbitration,  196 
State     Dept.,     cooperation     foreign 

trade,  221,  223 

Statistics.     See  also  facts,  dissemi- 
nation of: 

Associations  distributing,  44 
Statute    of    Employment   Relations, 

130 

Statutes  advertising,   167 
Statutory    requirements    re    export 

assns.,  233 

Stockholding,  intercorporate — 
Export    assns.,    holdings    in    per- 
mitted, 10 
Formation  subsidiary  corporation 

permitted,   10 

Investment  solely  permitted,  10 
Prohibited    if    may    substantially 

lessen  competition,  10 
Text  Clayton  Act  prohibiting,  281 
Text  Webb  Act  permitting  in  ex- 
port associations,  293 
Stocks,  value  of  facts  re,  47,  50 
Stockyards,      regulation      of,      text 
Packers    &    Stockyards    Act, 
313 
Stoneware  Mfrs.'  Assn.,  advertising, 

161 

Stoppage,  avoidance  of  by  standard- 
ization, 88 
Storage — 

Interference  with  procurement  of, 

270 
Lessened  by  standardization,   89, 

94 

Straw  bids,  250 
Strikes — 

Fomenting  to  restrict  production, 

248 

Settlement  of,   137 
Submission — 

Agreement  of  to  arbitrate,  203 
Arbitration  award  controlled  by, 

207,  208 
Substitutes,   discovery  by   research, 

113 

Suggestions     re     advertising     cam- 
paign, 165 
Supply — 

Curtailment  of,  247 

Cutting  off  competitors'  material, 

268 

Destruction  of,  248 
Interference      with      competitors' 

labor,  269 

Labor,  study  of,  138 
Value  of  facts  re,  46,  49,  50 


Sweden,  research  work,  123 


Tanners'  Council — 

Foreign  trade  bureau,  221 
Research,  116 

Tariff  Commission,  cooperation  for- 
eign trade,  221 
Tariffs — 

Data  by  assn.,  222 

Need  organized  contact  with  govt. 

re,  239 
Taxation,  need  organization  contact 

with  govt.,  239 
Tax  returns,  importance  accounting 

system  in  making,  68 
Tea  Assn.  of  America,  advertising, 

162,  163 

Technical  Assn.   Paper   &  Pulp  In- 
dustry, 108 
Technical  organizations,  cooperation 

with  in  standardization,  97 
Terms,  restraints  on  competition  in, 

258 
Territory — 

Apportionment  of  by  packers  un- 
lawful, 310 
Division  of,  246 
Textile  Transit  Ins.  Co.,  189 
Theft,  protection  against,  191 
Tile  Mfrs.'  Credit  Assn.,  180 
Time  of  arbitration  hearing,  206 
Trademark — 

Association,  154  ^ 

Bureau,  188 

Cooperative,      opinion      Attorney 

General  re,  332,  333,  334 
Foreign,  data  by  assn.,  222 
Trade — 

Arbitration,  attraction  of  by,  197 
Cost  accounting,  attraction  of  by, 

67 

Classification  of  246 
Trade  practice  submittal — 
Procedure,  41 

Type  of  practices  condemned,  42n 
Trade   relations — 

Arbitration,  better  of  by,  196 
Standardization,  betterment  of  by, 

91 
Traffic — 

Association,  subsidiary,  177 
Bureaus,  lack  of  expert,  175 
Bureau,  maintenance  of,  176 
Carload  weights,  172 
Claims,  handling  of,  176 


INDEX 


359 


Traffic   (Cont.) 

Classification,  importance  of,  171 

Committee,  standing,   175 

Conditions,  affect  industries,   169 

Cooperative  handling,  opinion 
Attorney  General  in  re,  329, 
332 

Demurrage,  172 

Discrimination,  penalty  for  in- 
ducing, 178 

Embargoes,  174 

Emergencies,  173 

Expert  bureau,  employment  of, 
176 

Export  rates,  171 

Freight  bills,  auditing  of,  176 

Import  rates,  171 

Interstate  Commerce  Act,  penalty 
for  inducing  discrimination, 
178 

Legality,  178 

Legislation,  probability  of,  174 

Methods,  association,  175 

Mixing  privilege,  172 

National  Industrial  Traffic 
League,  177 

Packing  requirements,  172 

Penalties,   172 

Priorities,  174 

Private  cars,  172 

Rates,  competitive,  discrimina- 
tion in,  170 

Rates,  dangers  in  readjustment 
of,  169 

Rates,  effect  on  business,  169 

Rates,  on  imports,  171 

Rates,  on  raw  materials,  171 

Ratemaking,  lack  of  unity,  168 

Refrigeration,  172 

Transportation  Act,  174 
Transfer   of  articles  by  packers  to 

control  prices  unlawful,  310 
Transfer  of  orders  to  prevent  com- 
petition, 250 
Transportation — see  also  Traffic 

Cost  of,  or  defense  for  price  dis- 
crimination, 9 

Need  organized  contact  with  govt. 
re,  239 

Reduction  waste  of  by  research, 

109 

Transportation  Act,  174 
Trends,  value  of  facts   in   re  busi- 
ness, 51 
Trusts,  244 

Turnover,  labor,  research  re,  111 
Types,  standardization  of,  85 


U 


Unemployment,  research  re,  111,  138 
Unfair  methods  of  competition — 
Classes  of  unfair  methods,  14 
Dumping  as,   18 
Export  assns.  in  export  trade,  by, 

13,  223,  233,  293 
Fraudulent  methods,  15 
Jurisdictional  Federal  Trade  Com- 
mission over,  299 
Methods   tending  to  hinder  com- 
petition, 16 

Methods  unfair  to  public,  16 
Study  of  by  International  Cham- 
ber Commerce,  38 
Study  of  by  Pan  American  Con- 
gress, 38 

Tests  of  unfairness,  14 
Text  declaring  dumping  to  be,  306 
Text   Federal    Trade   Commission 

Act,  299 

Uniform  contracts — see  Contracts 
Uniform  trading  rules — 
Associations  adopting,  213 
Benefits  of,  213 
Evils  of  lack  of,  212 
Legality  of,  213 

Union  regulations,  research  re,  111 
U.   S.   Office   Equip,   Export  Assn., 

225,  226 

United  Typothetse  of  America — 
Advertising,  159,  160 
Cost  accounting,  71 
Labor   plan,    127,    135,    136,    138, 

141,  142 
Trademark,  155 

United  Waist  League,  overstock  ex- 
change, 218 
University  of  Cincinnati,  research, 

116 

University  of  Illinois,  research,  116 
Uses — 

Advertising,  149  ff 

Development  new  by  research,  112 

Education    by   advertising   as    to 

new,  150 

Improvement  methods  of  by  re- 
search, 112 


Vail,  Theodore  N.,  attitude  re  re- 
search, 106 

Value  organization  in  government 
relations,  239 

Varieties,  standardization  of,  85 

Voluntary  arbitration,  198 


360 


INDEX 


Voluntary  restraint — 

Classification  of  trade,  246 

Defined,  244,  245 

Division  of  territory,  246 

Holding  company,  244 

Merger,  245 

Territory,  division  of,  246 

Trade,  classification  of,  246 
Voting  power  in  export  assns.,  227 


W 


Waiver  of  hearing,  arbitration,  205 

War- 
Business,  facts,  value  of  in,  53 
Cost  accounting,  value  of  in,  69 
Research,  value  of  during,  110 
Standardization,  value  of  in,  95 

Washed  sales,  250 

Washington     Commercial     Arbitra- 
tion Conference,  198 

Waste- 
Advertising,  148 


Waste  (Cont.) 

Cost  accounting  as  factor  in  pre- 
vention, 65 
Research,      elimination     of     by, 

107  ff 

Value  of  facts  in  re,  51 
Webb-Pomerene  Act — 
Discussed,  223,  229 
Text,  292 

West  Coast  Lumbermen's  Assn.,  la- 
bor policy,  141 
Whitelists,  267 
Wilson  Tariff  Act — 
Prohibits  import  combines,  232 
Text,  32 i 
Witness- 
Limitation  of  in  arbitration,  206 
Swearing  of  in  arbitration,  206 
Wholesale  Coal  Trade  Assn.,  adver- 
tising, 157 

Wholesale   Seedsman's  League,   col- 
lections, 182 

Writing  Paper  Mfrs.'  Assn.,  stand- 
ardization, 86 


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